5 Tax Planning Tips for Small Business in Canada
As a small business owner, you need to find ways to cut back on expenses and maximize profits. Here’s a quick list of 5 money-saving tax planning tips for small business in Canada.
One of the best things you can do for your bottom line is to stay on top of your financials so that come tax time, you have everything you need to make filing accurately and on time a breeze. Here are five tips for making tax time as painless—and profitable—as possible and increase profits throughout the year.
1. Know your eligible expenses
The money you spend in connection to your business can be claimed as a tax deduction, but only under reasonable circumstances. For example, if you use your car to travel to meetings, you can deduct the mileage related to those meetings, but you can’t expect to deduct all of your gasoline expenses. If you work out of your home, you can deduct your office space, but not your entire mortgage. Knowing what expenses are eligible for deductions will ensure you’re getting the deductions you deserve.
2. Keep track of your money
Success at tax time means working throughout the year to keep track of your money. Every single purchase you make and bill you pay related to your business should be noted, and every receipt saved. Setting up a system for keeping track of your money, whether it involves a ledger with an envelope for receipts (recommended) or you toss everything in a big shoe box (not quite as ideal,) is crucial for ensuring you have all of the info you need to save come tax time. Keep your receipts for seven years. If you’re audited by CRA, having a record of the receipts will work in your favor.
3. Keep impeccable financial records
The records you keep will not only save you money and headaches at tax time, but they can also keep you in the black in other ways. Knowing where your business stands financially at any given time can help you make the right decisions for your company, such as those related to managing inventory, hiring employees, expanding your business, and increasing your marketing budget. Logging every incoming penny and every expense, including payroll and cash transactions, is essential for staying in close touch with your bottom line. Accurate records also come in handy when you’re looking for investors or applying for a loan.
4. File your taxes on time
Late-filing penalties can cost you a pretty penny, and they start at a minimum of five percent of the balance you owe on your return, plus a penalty of one percent of the unpaid tax multiplied by the number of months you’re late in filing. These penalties add up, and they’re completely unnecessary. One major reason for late filing is the huge hassle of gathering all of your financial info, which is another important reason to keep accurate, tidy records.
5. Get advice on big purchases
Before you make that big purchase for your business, talk to your accountant. In Canada, deducting the cost of assets is generally done over several years, known as depreciation. Additionally, different types of assets are deducted at different rates, known as capital cost allowance. Your accountant can tell you exactly how much you can deduct and when, as well as give you sound advice on the best time to make big purchases.
Saving money boils down, in large part, to keeping excellent records and making sound tax and other financial decisions. An accountant can help you improve your bottom line and reduce your tax bill by maintaining clean financial records, filing your taxes accurately and on time, and offering sage advice on financial topics that can affect your company’s overall financial health. Contact us today, and let us take good care of your financials so that you can focus on growing your business.