Credit Tip Tuesday #66 7 Practical Tax Tips For Business Owners 

Taxes are inevitable 

Whether you are self-employed or own a small business in Canada, if the growth of your financial situation is on rotation, you have to pay taxes. 

 Indeed, it can be challenging and overwhelming to prepare for the tax payments and returns. However, avoiding or overpaying will only work against you. In fact, it might even be deteriorating for your business growth.  

So, it’s best to plan and prepare year-end strategies to pay your business taxes accurately. Do you want to know how? Keep reading! 

Small Business Tax Strategies  

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The earlier you start, the better planning you can think of! 

And preparing beforehand can help you find ways to reduce your income tax bill legally. But, of course, the ultimate payment depends on what business you own or if you have a partnership to manage.   

So, let’s read some corporate tax planning strategies for Canadian small businesses:   

Managing a business isn’t easy, and with so much on the plate, you tend to forget petty little things. However, you should record every trivial slip if you want to maximize your tax deductions.  

• The car parking fee you paid while meeting a client 
• The proposal letters you mailed to investors 
• The lunch you paid for an official business meeting 
• The party you organized for a successful business delegation 

They might seem like small bills at the time of expense, but make a considerable amount when you add up the sum.  

Even if you use your business credit card to make payments, it can still affect your credit score. Moreover, the CRA might ask for the real receipts, so make sure you have all the data recorded.  

 

Image Credits: Unsplash  

If you run a home-based business or usually attend to clients from your home premises, you can claim tax deductions for it.  

• For instance, if your home office takes up to 20% space of your total home, you might be able to claim 20% business home usage.  
• In fact, CRA has allowed home-business owners to benefit from tax deductions up to $500  

This type of tax deduction claim also applies to work-from-home employees. Hebatollah Al-Kedy explains the tax relief as a service of the Canadian government to help people in financial despair.  

Professional tax advice, beneficial spending habits, and up-to-the-mark preparation can help you reduce your business tax money. But, of course, there’s no scam or bad way to do this.  

However, still, the CRA provides some relaxation to struggling small business owners. One of them being income splitting. 

• Pay your family: You can split your business income within your family to reduce your family tax bill because any money going out of business is a deduction. 
• Choose the salary wisely: The amount you pay must be reasonable and considerable. For example, you can’t pay $5000 to a delivery person as it will look suspicious and faulty in the tax bill.  

By splitting your income, you’re basically regulating the cash flow of your business. So, for instance, the money isn’t going in one pocket (of the sole owner) but rotating among the employees.  

Pro-tip: You can get a credit card for all family members to keep the business accounts separate.  

As the name suggests, it’s a loss your business suffered in the year, making you eligible for a reduced taxable amount. FBC explains that a non-capital loss might mean: 

• Your business failed to generate more revenue as compared to the total running cost 
• Your rental property remained empty throughout the year, causing a dent in your total income  

The type of non-capital loss can have a different impact on your tax return, but surely you can use it to help with your company’s taxes.  

Image Credits: Freepik 

A tax professional can guide you better on all the recent and old tax updates. In addition, they know all the loopholes or strategies that can help you reduce your tax bill legally.  

Ask around and talk to other related businesses to learn about their accountant. Then, you can choose the right one by asking:  

• Do the professionals understand your business income and spending ratio? 
• Has he/she worked with small businesses in the past to help them with tax bills?  

Of course, you should also ask about their rate and availability but first, decide whether or not they are qualified enough to be your business accountant.  

We’ve been talking about the practical business tax tips for a minute now, so you must have thought we might have missed the basic yet essential one. Right? Wrong! We haven’t. Hehe. :p  

“Separate your personal and business finances to avoid any year-end conflict!” 

According to Heidi at Plooto, not separating finances can trouble you in ways: 

• Tax problem: If you used the same account for personal and business transactions and tried to claim personal finances to reduce taxes, you can be in serious trouble with the CRA! 

• A tracking mess: Using the same account can make it harder for you and the authorities to track and record your business transactions. So, you might end up paying more than you should be!  

However, using different accounts for your business account can help you build credit and improve credit score, benefiting your company’s credit score. 

• Avoid non-compliance: If your business is ever audited for taxes or other reasons, the process can be quicker and smoother with having a separate business account. 

• Optimize tax return: What you pay decides what you can claim in your tax return! So, keep your tracking and recording clear to get the maximum benefit. 

Moreover, you can create a credible reputation for your business by keeping up with your tax bills in the right way. 

The key is to set aside money for life and health insurance inside your organization. 

If you do it within your corporation, you’ll be buying the insurance with your business money, thus making it an option to claim your total tax bill! 

• You can open a health savings account to keep the money associated with the business. 
• You can also buy life insurance inside the corporation to reduce your tax bill 

The advice is to keep looking for legal ways to reduce your business tax. And avoid any risky move that can put you and your business in trouble.  

If you look for tax loopholes and shady tax-reducing strategies, you might become a victim of tax fraud and tax debt. 

FAQ’s 

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Before concluding this comprehensive guide, let’s read answers to some commonly asked business tax questions:  

Yes, small businesses with a single proprietorship usually pay an average tax of up to 13.3%, whereas a business with multiple owners has to pay 23.6% to 23.9%. So, the more your income, the more your tax bill.  

You can claim deductions on any business expense you’ve made. They might include:  

• Running cost 

• Utilities 
• Product manufacturing & maintenance fees 
• Business insurance  
• Office rent  
• The expense of business vehicle 

• Business machinery  
• Occasional supplies 

And so many more. You have to know your expenses to take full advantage of your tax deductions.  

If your business is registered with the authorities, you must pay taxes on your income. However, there can be ways to reduce the total bill:  

• Hire family members as employees 
• Apply for a retirement plan 
• Track every little expense 

• Create a business structure  

Paying taxes and avoiding tax debt is always a good idea to help your business grow and thrive! 

You can be liable for criminal charges if you consider avoiding business taxes as it will be considered tax fraud. Even if you manage to do it once or twice, continuing it is not worth the risk, as once the authorities know the loophole, you’ll be in deep trouble.  

In fact, they might even put a pause on your business! 

Bottom Line 

Having a good credit score in Canada can be helpful for your business in many ways. However, to be clear on your tax bill, you must wisely make your spending decisions.  

Moreover, you have to think of ways to make more money to set aside some bills for the annual tax payment, which can be hard if your business isn’t generating enough profit! 

 However, you can benefit from certain tax credits, deductions, and policies that might reduce your tax bill.  

Read the complete blog to know tax strategies and tips to help your small business with huge taxes!