How to reduce your taxes before year-end

Use this list to identify easy tax-saving strategies for your business.

As another year finishes, Canadian business owners need to take stock of their income, deductions and credits for the current year in order to take the necessary steps to minimize their tax liability.

Use this list to identify easy tax-saving strategies for your business.

First of all, don’t wait – review your tax situation now

By December you should have a fairly good idea of your income and expenses for the year. Prepare a projected income statement now to get a handle on your year-end situation. If you discover your business will incur substantial tax liability, a “heads-up” warning can give you an opportunity to do something about it before the end of the fiscal year.

For example, you can speak with your accountant to talk about these options to help minimize taxes before it’s too late.

Be generous with gifts

It’s the perfect time of year to make a sizable contribution to a charity. Give to registered charities and get a written or electronic receipt for your tax records. Your business will receive a 75% tax credit of the donation amount applied to taxable income.

  • To determine your charitable donation tax credit, visit this online calculator supplied by the Canada Revenue Agency (CRA).

Be sure to consult with your accountant or bookkeeper when deciding whether to donate money personally or through your business in order to understand the tax implications.

Make strategic purchases

If it looks like your income will be high for the year, and you have some extra cash, consider making some business-related expenditure before December 31.

High cost items such as software, staff training, advertising or office supplies will increase expenses and therefore decrease taxable profit for the year. As it’s the time of year to celebrate your staff and thank your customers, be sure to keep your receipts for any end-of year entertainment expenses.

Defer income to the next year

Another strategy for reducing taxable income may include billing customers after December 31. Receiving income in January instead of now is a simple strategy to reduce your taxable income for the year. Be sure to speak to your accountant or bookkeeper to see if this strategy is an option for your business.

Maximize savings when you hire family

If your spouse works for your business, you can pay them a reasonable salary which can later be deducted as a business expense. Just be sure to treat your paid family members like any other employee – have a contract agreement that outlines their job and salary, and keep any documentation the CRA might want to see that supports their work hours.

By following these simple suggestions you’ll increase the likelihood of a healthy tax return – and avoid any unpleasant surprises from the CRA next spring.

(Disclaimer – this information is presented for educational purposes only. Always consult with a qualified financial advisor about any tax-related strategies specific to your business or personal situation.)

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