3 Tax Strategies for Small Business Savings
Posted by Ocean Wealth
Believe it or not, small business is one of the major driving forces of our national economy. In Canada, 98.2% of all businesses have fewer than 100 employees and 55% have fewer than 4 employees. These are some pretty eye-opening numbers, especially when you consider how many people are trying to run their own operation.
Running a small business can be great. You have no boss to answer to, and you’re generally in an industry you’re either passionate about or know well. That said, you need to do an incredible amount of work behind the scenes. Unlike big businesses, you usually don’t have an entire team dedicated to bookkeeping and financial planning — the onus is on you.
This is why it’s important to have tax strategies in place. With so many costs associated with running your business as is, you need to understand how some simple financial planning can help you lower your income tax. In order to get the return you want, we’re here to break down some easy tax strategies that’ll help your small business save big.
Save Those Receipts
If you’ve ever had a friend who’s run a small business, they may have made the joke that they can write off dinner and drinks with them as a business expense. You probably laugh it off with the understanding that they’re kidding, but there is some truth to the matter.
In reality, if, indeed, it was a business dinner with a potential client, you can expense that. Anything that’s a business-related activity can fall under this umbrella. That means everything from printer ink to tea bags for your office. Even if you’re buying a new laptop or chair that you’re using for work, those can also be expensed to give you a lower tax tab.
The one important thing to remember is that the Canada Revenue Agency (CRA) only accepts original receipts issued by the place of purchase. That means you can’t take a screenshot on your iPhone and send it to them. You have to keep all your original receipts for whatever you want to write off for the upcoming tax season.
Stay On Top of RRSPs and TFSAs
A Registered Retirement Savings Plan (RRSP) or a Tax-Free Savings Account (TFSA) are both great income tax deductors for your small business.
Tax savings from an RRSP contribution are based on your marginal tax rate. Some or all of your allowable RRSP contribution can be carried forward into subsequent years. Because of this, you should save RRSP contributions for years in which you anticipate a higher income. Whether or not you should make an RRSP contribution should also depend on how much fluctuation you’re seeing from an annual income perspective.
If you’ve maxed out your RRSP contribution, look into opening a TFSA to shelter savings and investment income. Any kind of income and capital appreciation from stocks, bonds, or other interests is tax-free inside a TFSA. A financial advisor can provide more clarity on which kind of account you should focus on for your small business.
Earn Charitable Tax Credits
Donating to a charity you’re passionate about is always a good thing to do if you can. Outside of giving back, there are also some hidden tax benefits for small businesses.
Your charitable donation can amount to 75% of your net income. At the federal level, your credit will be 15% of the first $200 of donations and 29% on any amount above that. All Canadian provinces have their own credits, all of which are more or less the same and can vary from 4-24%.
Since the government assesses these kinds of tax credits at a higher rate, there are some real savings associated with charitable giving for your small business. So, in other words, get out there and start donating some of those dollars.
If you want to learn more about tax strategies for your small business, our trusted team of advisors can help you make informed financial planning decisions for your future. We recommend that you consult a tax expert regarding your unique situation. Please contact us if you would like us to make a recommendation!