Tax tips for new business owners
If there’s one thing you’ll dislike about being in business, it’ll be the taxes you have to pay as a business owner.
If there’s one thing you’ll dislike about being in business, it’ll be the taxes you have to pay as a business owner. So you’ll want to take advantage of every strategy available to help you to minimize your tax payable.
Keep in mind you must declare any business income during a given tax year – even if your new business isn’t yet making a profit.
Here are some strategies to help reduce your taxes.
Establish some good bookkeeping habits now, in the early days of your business. Write the purpose for any business expense on the back of every receipt and file them right away. Lost or missing receipts are a huge source of frustration for many small business owners who could really benefit from deducting their expenses at tax time.
If you’re paying for business expenses out of your personal accounts, separate your expenses to keep clean records. Apply for a business credit card and open a business bank account. Your monthly statements will provide an itemized list of business-related expenses, and will eliminate confusion if you’re ever audited.
Instead of using a spreadsheet to record your figures, consider a mobile-friendly accounting software solution. It’s a more efficient way to track your revenue and input expenses such as receipts – and accounting software will ensure your numbers are accurate, too, by eliminating typos and double entries.
You can also use your online accounting solution to automate invoicing, track expenses and streamline tax preparation. And as your business grows, you’ll be able to use it to process payroll for employees and share data with your accountant or bookkeeper.
If you are supplying services as an independent contractor, consultant or project manager through a small corporation in order to take advantage of the tax-friendly Small Business Deduction, it may be worth your while to learn about the issues surrounding the Personal Services Business (PSB) designation.
PSB (also known as Personal Services Corporation or ‘Incorporated Employee’) designations can affect people who perform job-like services through a corporation they (or family) primarily own. If you are deemed to be a PSB, the Canada Revenue Agency (CRA) could disallow your eligibility under the Small Business Deduction and you may lose all of the associated financial benefits.
Understanding which business-related costs you can legitimately deduct from your income will help to guide your business decisions and reduce your taxes. Here are two examples.
Familiarity with the full list of eligible business expenses will help you to plan your business purchases and activities in a way that makes the most tax sense. Visit the Canada Revenue Agency website to view a complete list of eligible expenses for small business owners.
Taxes are an inevitable part of running a business. By taking the time to learn about the taxes you must pay and setting up some simple systems within your business you can avoid any unpleasant financial surprises down the road.
(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 situation.)