The tax rules that apply to your business are unique and constantly changing. It would help if you kept up with the latest changes to maximize your tax write-offs as a small business owner.
If you’re a small business owner in Canada, there are many different ways that you can reduce your income taxes through deductions, credits, and other write-offs. The key is knowing which expenses qualify for these benefits to take full advantage of them.
In this article, we’ll look at some of the most common ways you can reduce your taxes by properly documenting expenses throughout the year and keeping track of any receipts or invoices related to those expenses. We’ll also discuss how best to structure your business so that it qualifies for certain tax breaks under current legislation (as well as how not structuring correctly could end up costing more than just a few missed opportunities).
Determine What Qualifies as a Business Expense
The first step towards maximizing your write-offs for small business is determining what qualifies as a business expense. Business expenses are any costs incurred by your business that relate to the operation of your business. These could include:
- Rent or mortgage payments made to your landlord for office space
- Utilities (heat/air conditioning, water, sewer, and garbage)
- Phone and internet bills for the office
- Office supplies such as pens and paper clips
- Meals or entertainment related to conducting business with customers or clients (for example, if you throw a party for potential new clients at an expensive restaurant).
If you have an accountant who can help determine which expenses qualify as legitimate write-offs, that’s great. Still, it’s important to remember that you’re ultimately responsible for keeping track of all these costs yourself!
Look into Your Business Structure and the Tax Implications it has
Consider the different business structures as a small business owner.
There are three main types: Sole proprietorship, partnership, and corporation. Each has its advantages and disadvantages as well as tax implications. For example, corporations generally pay more taxes than sole proprietorships or partnerships because they are not taxed on their net income but rather have it all paid out as dividends.
Because of this, they can often afford better equipment than the other types of businesses, making them ideal for large projects or situations where there are many overhead costs involved (for example, buying machinery).
On the other hand, if you don’t expect your company’s revenue stream will be high enough to warrant these larger expenses, then starting with one of the other two options might make more sense for your situation since these would allow you greater flexibility when managing expenses/taxes overall since money coming back into your pocket could be used elsewhere such as paying yourself wages instead!
Keep Track of All Your Expenses
When it comes to a small business, you can claim most of the expenses you pay for your work. There are very few exceptions to this rule, so you must keep track of your expenses immediately.
In most cases, if you make an expense while working for your business, this can be deducted as a tax deduction. Even if there is no specific reason for an expense (like buying coffee), it may still qualify as a tax write-off because of how broadly they define what constitutes “work”.
Some Examples Include:
- Business meals
- Business entertainment
- Travel expenses related to business travel (airfare or car rental)
Maintain Proper Documentation
It’s vital to keep good records for your business. The Canada Revenue Agency (CRA) will ask for them in the event of an audit, and they can help you decide how much tax you need to pay in a particular year. If you have records, it’ll be easier for CRA to determine your income and, by extension, how much tax you owe on it.
Here are Some Tips on what kind of Records Should be Kept:
- All invoices from suppliers or customers
- Payroll information (payroll deductions)
- Bank statements and investment information (if applicable)
Be Aware of the Deadlines for Claiming Your Write-Offs
Keeping track of the deadlines for claiming your business expenses, capital gains, and so on is important. Here are the basic dates:
- The deadline for filing your taxes with Revenue Canada is April 30 (for most people). If you use a tax preparer or accountant, they can help you file your taxes online. You can also use their office to drop off hard copies of documents needed for filing. They’ll do it all for you.
- The deadline for claiming any business expense write-offs is June 15. This includes advertising and marketing costs, travel expenses related to business activities (if applicable), and home office expenses. If you have a separate room in your house used solely for work purposes, remember that it must be used primarily by one working from home rather than two people who share the space equally between them doing different things.
- The deadline for claiming capital gains from selling property or other assets is December 31 each year. If someone has inherited shares in a company but hasn’t sold those shares yet by December 31 because he wants more time before deciding whether or not to sell, then yes, technically speaking, those are still considered capital gains even though no money has changed hands yet because technically speaking this person now owns something worth more than what was paid initially so technically speaking, there would still be some gain even though nothing has changed hands yet.
It’s Worth Taking the Time to Get Right. These Deductions Make a Big Difference
- The difference between an expense and a capital cost
- Why keeping track of expenses is important
- Why claiming all your deductions is important
- How to make sure you claim the right amount on your tax return
- How to get your tax return in on time
If you’re starting a business, knowing where to start with your taxes can be hard. Don’t worry. It’s simpler than it seems. By following these tips, you’ll be well on your way to ensuring you get the most out of your tax return.
Jennifer is a fun-loving girl with more interest developed in writing. She loves to cook and read books in free time. Her hobby of reading books at a young age motivated her to start writing blog posts, and here she is, with numerous articles written. Other than cooking, reading, and writing, she enjoys exploring the great outdoors.