Reducing the amount of tax your business pays is one way to ensure it has enough money to survive and thrive. Give your business the advantage with a little preparation, some good habits, the advice of a qualified tax specialist, and the following tips.
How to reduce your business taxes
Hold onto every receipt
You should be aware of eligible deductions. Hang onto your receipts and work with an expert review them.
Trust your accountant to determine whether or not a certain travel receipt, client meal, clothing purchase, or magazine subscription is a deductible business expense. But they can’t help you if you don’t have the documents, so make sure to hang on to everything.
1. Record what the receipt was for
Get in the habit of writing on your receipts as you receive them with the activity. It will make the bookkeeping and accounting process easier because you’ll have a log.
2. Create a filing system
Those tiny slips of paper end up everywhere: in wallets, purses, briefcases, and shoe boxes.
Create a simple filing system that works for you, and then use it. Come tax time, these few steps will save lots of headaches and time.
3. Separate your business and personal finances
If you’re just starting out, or working from a home office, it can be tempting to take care of your day-to-day expenses with your personal credit card. But this can complicate potential tax deductions.
Try to keep your business and personal finances separate. Consider getting a business credit card with your business name on it and opening a separate business bank account.
4. Pay taxes and instalments on time
You do all the little things right to reduce the taxes you have to pay and free up more money for your business.
So when your instalments are due, be sure to pay on time to avoid penalties and interest-rate charges on late amounts due.
5. Shelter your income from tax
Like employed individuals, there are good reasons why business owners should take advantage of tax-savings vehicles.
With a Registered Retirement Savings Plan (RSP), you get an upfront tax deduction for your contribution, plus your money compounds tax-free. An RSP can be an effective way for business owners to diversify their income sources and shelter that income from tax.
Another popular vehicle is a Tax-Free Savings Account (TFSA). You don’t get the upfront deduction with a TFSA, but your savings do grow tax-free and you can make withdrawals from your plan at any time without paying tax.
6. Hire an accountant
To take advantage of all possible business-related expenses, it’s a good idea to engage the services of an accountant.
Referrals from other business owners can help you find an accountant. Be sure to check references, qualifications and areas of specialization. Do they have experience working with small businesses? Are you comfortable with them? Do they seem to grasp the challenges and opportunities facing your business and its industry?
7. Take your deductions
Are you taking advantage of all available small business tax deductions? If you’re about to file your taxes, some of these may be items that you prepare for next year. Here are some key deductions to keep in mind:
- Association dues/memberships
- Magazine or periodical subscriptions related to your business
- Interest costs on business loans
- Business insurance on contents, machinery and equipment
- Office supplies used to provide your services or products
- Business related vehicle expenses, including fuel, insurance, maintenance
- Travel expenses for earning business income
- Legal and accounting fees
These are just some of the deductions you might be entitled to. If you work from home, you are also allowed to deduct a portion of all related home expenses, including utilities, maintenance and insurance.
Again, your accountant can help ensure that you are taking advantage of all available business deductions.
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.