There are numerous advantages to becoming a small business owner, and 1.2 million Canadians are busy reaping them as this is being written. Being able to set your own schedule, choose who you work with, and steer the business in whatever direction you see fit, makes entrepreneurship a highly attractive prospect.
However, having to navigate the murky and often complex waters of corporate tax planning, is a hurdle all small business owners have to overcome, year after year. Choosing to seek help from tax services in Surrey BC, can help entrepreneurs develop detailed tax planning strategies to minimize their tax burden, and keep the Canada Revenue Agency (CRA) happy.
Below are five helpful strategies an experienced CPA would likely point you in the direction of as a small business owner:
- Making the most of home office deductions
With more and more Canadians working from home, claiming expenses such as utilities, mortgage interest, property taxes, and home insurance, has become increasingly relevant for entrepreneurs and other business owners with home offices. Importantly, you must make sure that the space you use is either used exclusively for earning income for your business and conducting client meetings, or is the principal setting for your business.
- Effectively using non-capital losses
One often overlooked (or misunderstood) way to make corporate tax savings, is by exploring non-capital losses. But what exactly are non-capital losses?
When a companies business expenses exceed that of its income, this is referred to as non-capital losses, which can be applied against other income sources from the same year, carried back from the three years prior, or carried forward up to twenty years.
This enables entrepreneurs to apply those losses in a strategic manner over a period of time, helping to minimize their taxes and cushion them when times might be lean, along with giving them tax savings when profits are higher.
For more detailed information on this corporate tax strategy, or any of the strategies listed here, schedule a consultation with a local CPA.
- Make strategic RRSP and TFSA contributions
A cornerstone of personal and corporate tax planning, appropriate management of Registered Retirement Savings Plan (RRSP) and Tx-Free Savings Account (TFSA), can help Canadian business owners reduce their personal income tax, while enabling them to save for the future without paying more taxes, by investing in a TFSA.
If you can balance these contributions according to your existing tax bracket and expected future income, you can reap the rewards when planning your overall tax strategy.
- Make family members employees
If you pay your family members (such as a child or spouse) an appropriate salary for work carried out legitimately, you can transfer income to a lower tax bracket, from a higher one, which will lower the overall tax liability of your household.
Helping you save on taxes, this strategy also gives small business owners the chance to support their family members financially, and possibly contribute towards their CPP benefits.
- Think about incorporating your business
This strategy has the potential to unlock a number of different opportunities for tax planning, such as splitting income to family members through dividends, which can lower your tax burden overall.
Once incorporated, businesses can also take advantage of Lifetime Capital Gains Exemptions on any small business corporation shares they go on to sell, which when selling the business, can provide a lot of tax relief.
Lastly, offering flexibility when managing both personal and business finances, is the ability corporations have to defer taxes on the businesses’ retained income.
There may well be other tax strategies you can deploy as a small business owner, and the best way to learn about and benefit from them is by hiring a corporate tax accountant. They will give you all of the latest advice and guidance related to corporate taxes, and support you not just during tax season, but throughout the working year.