The end of 2019 is fast approaching – but you still have time to maximize your tax breaks! Unfortunately, trying to figure out exactly what you owe the government (or what they owe you) isn’t always a fun process.
Here are 5 simple tips to help you save money, and ensure your tax bill is no more than it needs to be.
Consider Incorporating Your Business
Many sole proprietors incorporate because of tax breaks. In Canada, the best known of these is the Small Business Tax Deduction.
With this deduction, the income of qualifying Canadian-held corporations is taxed at a reduced rate. The tax rate for qualifying private corporations is 10.5%, while the rate for other types of corporations is 15%.
It’s important to note that incorporating your business for taxation purposes should only be done if your business has experienced considerable growth. Your business should have significant income to offset the costs of incorporation, and also to leave enough of your earnings to benefit from this tax break.
For example, if your incorporated business’ profits for the year are $50,000, and you take $50,000 from the corporation in salary – then your profits will end up being taxed as your personal income. This renders your company’s incorporation for tax purposes pointless.
Home-Based Deductions
If you operate your business out of your home, then you have some big advantages when it comes to income tax.
In addition to the Business Use-Of-Home Deduction, home-based business owners can deduct a portion of certain expenses, such as heat, electricity and home insurance. And, if you own your home, you can also deduct portions of your property tax and mortgage interest!
You can read more about these deductions here.
Donate To Charity
When you donate to charity, everybody wins.
Not only is your donation great for the organizations that receive them, but you also receive an impressive federal tax credit of nearly 30%, with some provinces offering additional credit.
The CRA has a charitable donation tax credit calculator, that lets you enter your donation data and tally up the exact credit you will receive. It’s important to note that donations typically have to be over $25, and that the charity must be registered for you to receive a tax receipt. Here’s a handy tool that can help you find the right registered charity for you.
Split Your Income
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, you can reduce the marginal tax rate on your income. This is an especially powerful tax strategy for small business owners with children of post-secondary school age.
If you intend to employ a family member in your business, keep your claims reasonable and complete all the paperwork as you would when hiring any employee or contractor. Check out Income Splitting for Canadian Businesses to learn more. Ensure your family member is actually contributing to the business in some way and has the skills required for the job they are being paid for.
Defer Your Income
Income is taxed in the year it is received. If you are self-employed or do freelance or consulting work, delaying billings until late December can ensure that you won’t receive payment for work done until the next calendar year. Be sure to make these adjustments within reasonable bounds so that it does not fall foul of the CRA. After all, the intent with your taxes is to be efficient, not evasive.
Bonus Tip: Using REMITR for your business payments can help improve your company’s cash flow. With us, you can send payments effortlessly, wherever you do business, for less.
