How Small Businesses Can Save on Income Tax
If you operate a small business, there’s a good chance that you’d like to find some ways to save a bit of money. One of the ways you can do this is by taking advantage of a few of the potential tax savings that are available to small business owners in Canada.
Here are some tips for optimizing your tax strategy to save your business money.
Figure out Your Dividends and Salary
When you own a small business, you can withdraw income in the form of a salary or as a dividend (corporation). There are different benefits and potential drawbacks to both methods and it’s a good idea to consider the options thoughtfully.
For example, if you pay yourself a larger salary, you’ll be able to max out your RRSP contributions. Plus, you’ll need to draw a salary to qualify for the Canada Pension Plan. However, you’ll likely pay more in income taxes while doing this.
Depending on where you live, you could pay yourself a significant amount in dividends (in some provinces, between $30,000 and $40,000) before you have to pay tax on this money. This can lead to some pretty significant savings.
You are able to change your mix of dividends and salary each year, as well, so you can adapt to changing needs as you go.
Know Which Deductions You Can Take Advantage Of
Small business owners in Canada are able to write off certain business expenses. These include:
- Business management expenses (such as website hosting, postage costs, bank charges, payment processing fees, and fees paid to external business professionals such as consulting companies, legal services, accounting services, and more)
- Business insurance premiums
- Certain vehicle expenses
- Travel expenses
- Office supplies and other operating expenses
- Capital property (vehicles, furniture, fixtures, equipment, buildings, etc.)
- And many other expenses
Keep Good Records
This isn’t so much taking advantage of a tax break or a loophole, but it is something that could save you some money. If you keep good, organized records – including detailed information on eligible expenses – you’ll find it much easier and quicker to complete and submit your tax returns before the deadline. You don’t want to miss the tax deadline, because the Canada Revenue Agency (CRA) charges pretty significant penalties to those who do.
Plus, if you’re not organized, it’s a lot more likely that you’ll make a mistake or miss out on taking advantage of an opportunity. If you have all of your expenses and records easily available, it will be more straightforward to claim business expenses and other deductions.
Working with a Chartered Professional Accountant
A Chartered Professional Accountant (CPA) understands the complexities of the Canadian Tax Code. When you work with a CPA firm, you are working with experienced professionals who can assist you with tax planning for your small business.
Not only can we prepare your income taxes, but we provide you with tax saving and optimization strategies throughout the year that can save you money. If your small business isn’t utilizing the most optimal tax strategy, you could be missing out on significant opportunities. A CPA firm will review your situation and develop a strategy that works for your business.
For more information, please visit our tax services page or contact us today for more information on how a CPA can help your small business save on income taxes.
