Five Ways Canadian Small Business Owners Can Reduce Their Tax Liability

Owning a small business comes with no shortage of responsibilities and to do lists. Often, one of the most dreaded tasks is accounting. However, it is also one of the most important. Furthermore, proper accounting practices can not only help you head into tax season prepared but, can also provide you with valuable information to help reduce your tax liability and save money! Sounds like a win-win to us. Here are some strategies you can implement today to help lower your income tax.

1. Keep your receipts

Often, small business owners are advised to track all of their business expenses in preparation for tax season. Tracking is important, but, it’s not enough. You will also need to ensure that you have original documentation of your purchases. This means, you’ll need receipts – either paper or digital – to support your claim. Be sure to hold on to all original receipts related to expenses that help you do business. Whether it’s a coffee with a client or a new software subscription, hold on to it!

2. Contribute to your RRSP and TFSA

Contributing to your RRSP and TFSA are both great ways to reduce your income tax. RRSP contributions can even be saved and carried forward to the following year. Saving these contributions for a year where you are expecting a higher income can help you save even more.

If you have made the maximum allowable contribution to your RRSP, you can begin contributing to a TFSA or ‘Tax Free Savings Account’. TFSAs help shelter your income from taxes. Even better, both income and capital appreciation are tax free within the TFSA.

3. Donate to Charity

Donating to charity is a great way to give back but, it’s also an excellent way to help you earn tax credits. If you are looking to earn tax credits through your charitable donation, make sure that you are giving your donation to a registered Canadian charity. Donating to charities who are not registered, International charities as well as political parties will not earn you tax credits.

4. Claim your Capital Cost Allowance (CCA) at the Right Time

Small businesses must deduct the cost of depreciable property they’ve acquired over a period of years. This is done through the Capital Cost Allowance or CCA. It’s important to be aware that you are not required to claim the deduction in the year that the property was acquired.  You can use as much of the CCA claim as you would like to and carry forward the rest to the following year. It is wise to carry it over it you are expecting a larger income tax bill in the following year than the current year.

5. Hire a CPA

Of course, we would be remiss if we didn’t touch on this important topic. Business accounting and taxes can be complicated. It is an especially daunting task to handle while you are trying to operate all other aspects of your business. In addition, you may not be aware of all of the easy ways you could be saving on your tax bill. For these reasons, we recommend hiring a certified professional accountant and/or bookkeeper to assist you in preparing for tax season and filing your taxes.

If you’re feeling overwhelmed this tax season, contact us! With over 20 years of experience, we have the knowledge and expertise to help you get a handle on your business accounting and taxes!

 

5 Tips to Help Freelancers Prepare for Tax Season

Tax season can be a nightmare for freelancers and small business owners. But, with proper preparation and a little help, it doesn’t have to be so painful. Here are our tips to help you prepare for smooth sailing all the way through to this year’s tax deadline!

1. Track Your Expenses

The single most important thing you can do as a freelancer to help prepare yourself for tax season, is track, track, track and track some more. From income to expenses, to HST/GST that you charged and HST/GST that you paid, it’s all important information to have organized and at your fingertips prior to tax season.

There are many ways you can do this. Your first option is to track yourself. You can do this with an excel spreadsheet or accounting software. But, as your business grows it is worth considering hiring an accountant or bookkeeper.  This is a great way to ensure that tracking is done properly by a certified professional with experience. Ultimately, it helps make tax season a breeze.

2. Think Ahead

 Many freelancers get blindsided by income tax in their first year of business because they weren’t thinking ahead. Avoid this mistake by setting aside about 30% of your revenue into a savings account each month. This will help you slowly chip away at the income taxes you will likely owe come April instead of scrambling to pay them at the last minute.

3. File Your Taxes On Time

Speaking of tax season, don’t forget important deadlines. The standard Canadian tax deadline is April 30th. If you are self-employed the deadline to file your taxes without penalty is June 15th. Keep in mind, however, that you must ensure that you pay any taxes owing by April 30th. Make sure that you abide by these deadlines so you don’t end up paying interest or penalties on what you owe!

4. Invest!

Investing is a great choice for many reasons. Not only will it help you build up a nest egg but, it’s also an efficient way to lower your income tax bill! Income that you invest into an RRSP is sheltered from taxes. It’s a smart decision all around!

5. Hire A CPA.

As your business grows it is a good idea to look into hiring a certified professional accountant or CPA. They can help you discover tax breaks, credits and deductions you didn’t know you were eligible for. They can also help you identify what you can claim as an expense and what you cannot. Finally, they can help you keep everything organized and balanced.

 

There are lots of ways to ensure that tax season isn’t a nightmare for the self-employed. Of course, our favourite way is Taxvisors!

If you are looking for help with your personal and business taxes please contact us today!

 

10 Benefits of Having an Accountant

As you focus on your business, the ins and outs of your money are probably the last things on your mind. The hectic schedule of a business owner basically points out the need to hire for an accountant who can keep the company’s financial cycle in check.

Here are the top advantages why putting up a budget to get a good accountant is good for your business.

  1. Saves you time. You don’t have to do all the tasks yourself. An accountant can help you deal with the company’s most important obligations such as paying taxes and making sure you don’t miss deadlines. Since an accountant knows the latest tax laws, rules, and regulations, the latter can also save you hours and hours of time traveling through your state’s tax requirements and tax liabilities.
  2. Reduces tax liability. Accountants know how to operate through some ways on how you can save your taxes and avail of tax deductions by taking a look at your monetary capacity and financial transactions. They can take care of tax computations and give you advice on the most tax efficient way of running your business.
  3. Prevents hefty tax penalties. A lot of business owners who ignore tax payments have actually experienced being penalized and faced with tax suits for tax evasion. When you have an accountant, you can reduce the chances of getting late in the filing of tax returns therefore saving you from becoming one of these people and prevent expensive penalties for missing tax payments.
  4. Helps your business grow. A good accountant can be a great resource of advice and wisdom as to how you can manage your business expenditures, and account for your losses. In this way you can make informed decisions based on calculated risks and pre-determined results.
  5. Removes your tax anxiety. An accountant can help explain to you in details the complexities of the tax system so don’t have to worry about not having knowledge in tax at all. Knowing that someone will take care of your taxes can give you peace of mind and a good sleep at night.
  6. Helps with bookkeeping. For small businesses, bookkeeping is very important. An accountant can help you record sales and purchases, regular expenses, bank balances, and other financial matters related to your business. Without accurate bookkeeping it would be too hard for you anticipate future gains and losses, which can put your company at risk of major financial crises.
  7. Keeps your business organize. If you are managing a big business with several employees and different departments, an accountant can help organize rentals and utility bills. Accountants are also good in payroll system, budget-making and can be the best persons who can give you advice how to organize your loans and investments, so you don’t fall in a downward spiral.
  8. Keeps you focus on other important business matters. With an accountant on your team, you can breathe easily knowing that your financial affairs are well taken care of. As a result, you can focus on other important matters that you have to attend such meeting with the board of directors, expanding business, marketing, employee relations, and many other undertakings that put on you on the frontline.
  9. Assists in business planning. As much as you want to expand your business, your accountant is in the best position to help provide you with business reviews and financial reports that your company will rely on in making important business decisions. Aside from this, an accountant can help you assess the viability of such plan keeping you well guided in expanding your company.
  10. Expands network. An accountant can help you have access to other industries related to your business. This gives you greater chances of meeting new people who can be a part of your network and help you with other aspects of your business.