Running a business is a lot of work, and naturally, you want to keep as much of what you make as possible. So here are some tax tips to help you do just that.
1. Keep complete records
Be diligent about your record-keeping to avoid lost receipts that can mean missing out on tax deductions. Keeping electronic copies of scanned receipts can help you stay organized on the go, but file your hard copies as well in case you get audited.
2. File your taxes on time
Self-employed people have until June 15 to submit taxes, but take note: if you owe money to the Canada Revenue Agency (CRA), you need to pay your tax bill by April 30 to avoid late fees. If you file after the June 15 deadline, according to the CRA website, you’ll pay a 5% late penalty and 1% interest every month thereafter.
3. Hire a family member
As far as tax planning goes, the benefits of hiring your spouse or child and paying them a salary are two-fold: for 2019 the first $12,069 of a family member’s employment income is tax free (i.e. the “basic personal amount”), and their salaries count as a tax deduction for your business. Just make sure salaries are reasonable and you keep a paper trail to prove the work was performed.
4. Separate personal expenses
Make it a habit to pay for any business-related expenses with a separate business credit or debit card. You’ll simplify your record-keeping and potentially avoid a red flag with the CRA. If an expense falls under a grey area, like bathroom issue for your home office, be sure to note how it relates to your business on the receipt.
5. Invest in RRSPs and TFSAs
Tax-advantaged savings plans are a smart way to save for retirement and lower your tax bill. A Retirement Savings Plan (RSP) will allow you to shelter your savings from tax; while a Tax-Free Savings Account (TFSA) lets you withdraw money without penalty.
- Check your RSP deduction limit on your most recent Notice of Assessment from the CRA.
- The TFSA contribution limit for 2017 is $5,500.
- Explore all of your investment options with a qualified financial advisor.
6. Write off losses
If you’ve ever had a non-paying customer, experienced a capital loss or your business was targeted for theft, you can include those losses as legitimate tax deductions.
7. Deduct home office expenses
Things like utilities, internet charges and stamps are often missed by business owners who run a home-based business or use a home office. The CRA requires you to calculate the percentage of your home space allocated for business use to determine the portion you can claim for rent, mortgage interest, utilities and other expenses.
8. Claim moving costs
If you moved at least 40 km to run your business, you can claim a number of related costs including transportation and storage fees, realtor commissions, and charges for connecting or disconnecting utilities.
A final tip: an accountant can potentially save you money by identifying tax deductions you may not know about. Consider working with an accountant familiar with your particular type of business.
This information is presented for educational purposes only and should not be considered as tax advice. Be sure to consult with a qualified tax specialist to obtain tax advice specific to your business or personal situation.