Tax-savings Strategies for Business Owners
Tax-savings strategies for business owners
Here are some straightforward ways to aid your tax preparation throughout the year.
Hold onto every receipt. Your accountant will know better than you if a certain travel, meal, clothing or subscription is a deductible business expense, so get in the habit of hanging on to every receipt.
Record what the receipt was for. Get in the habit of annotating your receipts as you receive them. If you or your bookkeeper uses an electronic record-keeping system, having clear receipts will make the process easier.
Create a filing system. Those tiny slips of paper end up everywhere: in wallets, purses, briefcases, 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.
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 credit card with your business name on it and opening a separate bank account.
Pay taxes and installments 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 installments are due, be sure to pay on time to avoid penalties and interest rate charges on late amounts due. Shelter your income from tax. Like individuals, there are good reasons why small 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 is an effective way for business owners to diversify their income sources and shelter that income from tax. You don’t get the upfront deduction with a Tax-Free Savings Account (TFSA), but your savings do grow tax-free and you can make withdrawals from your plan at any time without paying tax.
Use 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 small businesses or colleagues 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?
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 service or good,
• Vehicle expenses (if used in business), 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 out of your home, you are also allowed to deduct a portion of all related home expenses, including utilities, maintenance and insurance. Your accountant and tax advisor can help you ensure that you are taking advantage of all available small business deductions.