There are multiple business strategies that can be used to reduce income taxes. Understanding which method is best for you, can require careful planning and consideration. While not all small business strategies will work for every small business, we have highlighted five strategies that may be a good way to start thinking about your small business tax planning.
- Collecting Receipts for All Purchases
Maximize your income tax deductions by collecting the receipts for all your purchases, regardless of how big or small, so long as they are or may be business-related. The next step after collecting the receipts is to record and file them appropriately. Remember, the little parking receipts can add up.
- Split Your Income
Take full advantage of the marginal tax rate disparities with this small business tax strategy. The higher your income, the higher your marginal tax rate in Canada. By transferring a portion of your income to a family member with a lower income, such as a spouse or child, you can reduce the marginal tax rate on your income.
- Income Tax Deductions Available to Home-Based Businesses
Home-based business owners can deduct a portion of their many home-related expenses, such as heat, electricity, home maintenance, cleaning materials and home insurance. Make sure the Business Use-Of-Home Deduction is applied as well.
- Incorporating Your Business
One reason many sole proprietors and partners incorporate their businesses is because of the tax advantages of incorporation. The best known of these tax advantages is the Small Business Tax Deduction (SBD), whereby the income of qualifying Canadian-held corporations is taxed at a special “reduced” rate. For Canadian-controlled private corporations claiming the small business deduction, the corporate net tax rate is 10.5%. For other types of corporations, the corporate net tax rate is 15%. Please give us a call to discuss changes to passive income for the SBD as the rates can be subject to change.
- Manage Your RRSP and TFSA Contributions
The Registered Retirement Savings Plan (RRSP) and Tax Free Savings Accounts (TFSA) can be excellent Income Tax Deductions for Small Business Owners, particularly for sole proprietors or partners.
Small Business tax planning strategies are an important consideration when thinking about tax planning. Allan Bush and his CIBC Wood Gundy investment team have an integrated group of specialists that are willing to help build a consolidated plan that can help meet all of your unique wealth management needs. If you are looking for more information, please feel free to contact one of our members, and we would be happy to assist you.