For many Canadian entrepreneurs, that bright moment occurs when they think of a revolutionary idea for a new product or service. While small business owners are passionate about their ideas and want to change the world, sometimes they don’t allocate time or resources to their taxes. It’s never too early to start thinking about tax planning strategies and ways to reduce your tax burden. Especially while there’s still time to make positive changes to your tax situation.
1. Do your bookkeeping
You may retain an assistant accountant, a good accountant near me, or employees to do your daily bookkeeping services, prepare accounts, make journal entries, and so on. This way, the CPA you hire will have information ready to use to provide professional tax services near me. You can organize your books ahead of tax season so CPAs need less time to do their jobs, saving money in the process. You can also prepare your income statements and balance sheets in advance and save on the expensive hourly accounting rates of CPA companies. You can also hire bookkeeping services and accountants near me for help.
2. Take advantage of off-peak hours
Seasonality plays an important role in tax services near me in Canada. CPAs generally tend to raise their rates during the busiest times of the year, such as the first calendar quarter of the year. If you hire a CPA to prepare your tax returns when handling multiple jobs, you are guaranteed to pay more. The best way to save money is to hire a CPA during the off-season of the year. Not only do you get low rates, but you also do the bookkeeping early to fully comply. Hire tax services near me during off-peak hours.
3. Remember the deadlines for filing tax returns
Preparing your bills in advance can help you take advantage of lower costs. Don’t go to the CPA’s door three days before your tax return is due. Contact an accounting firm well in advance of your deadline when it’s time to take advantage of affordable rates.
4. Outsource accounting and bookkeeping services
Many companies outsource their accounting to increase efficiency and save money. Many CPA firms provide outsourced bookkeeping and accounting services. You can hire the services of a professional CPA for a fixed fee and lock in the fixed costs. Many companies in Canada offer a tiered pricing system in such cases. If necessary, you can use CPA services only for complex and on-demand tasks. This way, you can lock in your accounting costs and minimize your tax filing costs by using the best resources.
5. be smart about saving
Compare prices and find out if outsourcing is better than managing your own accounting staff. If outsourcing saves you money, it’s best to outsource your accounting duties to a reputable firm or search for accountants near me that provide quality accounting services. In some cases, outsourcing is not a recommended approach, especially if it involves administrative work. It is best to retain an accountant near me who can provide accounting services to the business.
6. Claim non-capital losses
If your business has a non-capital loss (your expenses exceed your business income) in any year, find out in which year you can use that loss to reduce your income tax. The capital losses can be used to offset income, and the loss can be carried back three years or carried forward up to 20 years. With the help of a tax professional experienced in working with small business owners, you can decide whether it makes sense to use the non-capital loss in the current tax year, carry forward the non-capital loss to refund the income you’ve already paid, or carry it forward, to offset a larger tax bill.
Find accountants near me for more help.
7. Manage your RRSP and TFSA contributions
Registered Retirement Savings Plans (RRSP) and Tax-Free Savings Accounts (TFSA) are excellent ways for Canadian business owners to maximize their tax deductions. How much you should contribute depends on how much your income changes each year. Contributions to an RRSP are tax-deductible, so you get immediate tax relief and tax-free growth. To maximize the benefits of an RRSP, you should contribute to it when you’re in a higher tax bracket. Because any unused contributions from previous years can be rolled over, it may be best to delay RRSP contributions until a year when a high income is expected. You don’t get an upfront tax break with a TFSA, but your money does accrue tax-free, including capital appreciation, bonds, and other interest-bearing financial products. If you’ve maxed out your RRSP, you can put money or investments into a TFSA. Find out when it’s beneficial to use an RRSP or TFSA depending on your income level.
8. Incorporate your own business
Small business owners looking to minimize what they pay in taxes might consider incorporating their business. Depending on what your business does and what province you operate in, incorporating your business may result in tax deferral. When you set up your business, you can enjoy some tax benefits that aren’t available to unincorporated businesses, such as income tax splits and capital gains exemptions on the sale of your business. A big benefit of incorporating your business is the reduction of corporate tax rates. For Canadian-controlled private companies claiming the Small Business Allowance, the net tax rate is 9%.
By comparison, if you register a company as an individual, you pay the personal income tax rate on all profits. In 2022, personal income is taxed as follows:
- 15% of the first $50,197 of taxable income plus
- 5% on the next $50,195 in taxable income (from the portion of taxable income greater than $50,197 up to $100,392), plus
- 26% on the next $55,233 in taxable income (from the portion of taxable income greater than $100,392 up to $155,625), plus
- 29% on the next $66,083 in taxable income (from the portion of taxable income greater than $155,625 up to $221,708), plus
- 33% of taxable income exceeding $221,708
Another big benefit of starting a small business is limited liability. When a business is registered, it is considered a separate entity separate from the owner or shareholders.
The incorporated company owns and manages the business and is liable for any liabilities, not the individual owner or shareholder (although in some cases the administrator is still liable. Talk to a tax professional about exceptions). If your small business carries a lot of risks, incorporating it could protect your personal assets from creditors and lawsuits.
If the CRA asks you to verify your claims, you must provide original receipts. Keep them for at least six years from the last Assessment Notice, until the CRA requests them in the event of an audit. If you want help with your books, you should get in touch with an accountant near me who can help you save a larger chunk on your taxes.