Introduction
Let’s face it. Very few people enjoy paying taxes. If the amount business tax your business pays on a yearly basis makes you shudder, this article is for you. It is important to note that you can’t avoid paying tax completely unless you want to land in jail. It is however possible to reduce the amount of tax your business pays using a number of effective business tax strategies. Below are 4 effective business tax strategies to consider as a small business owner.
1. Make sure you collect receipts for all business-related activities
This is a very important strategy for reducing the business tax you and your business will be required to pay at the end of every year. As a business owner, you shouldn’t throw away any receipt for business related activities. The parking fee you pay when meeting a client or the lunch you buy clients/employees can equate to huge sums of money at the end of the year. You can be able to maximize your business income tax deductions by collecting and recording such receipts as business related expenses.
2. Manage RRSP contribution
The RRSP (Registered Retirement Savings Plan) offers one of the best income tax deduction strategies for small business. This shouldn’t however be taken to mean that you should maximize RRSP contributions every year. Managing the contributions is a better business tax strategy. RRSP contributions are usually carried forward when they aren’t used in a particular year. You should therefore estimate the total yearly income and decide what RRSP contribution is appropriate. It is important to make a contribution depending on the income that year. For instance, it doesn’t make sense to make a large contribution in a year where your income is low.
3. Maximize non-capital losses
This is another effective business tax strategy to consider. If your business expenses exceed the business income, a business is said to have a non-capital loss. It is important to be able to know how to make the best use of non-capital losses to decrease your business’s tax bill. It is possible to use Non-capital losses to reduce the amount of tax by carrying the loss back 3 years or forward up to 7 years. It makes sense to carry non-capital losses backwards to recover tax you have already paid or carry the losses forward to reduce large tax bills in the future than to use the non-capital loss advantage in the year capital loss occurs.
4. Maximize charitable income tax credits
Charitable donations made to registered charities among other qualified donees earn businesses tax credits. It is important to note that donations above $200 offer more tax credits since they are assessed at higher rates. To maximize the charitable income tax credits, small business owners should consider giving more to registered charities i.e. 5% of their income. It is however important to note that making donations to non-registered charities and political parties don’t result in tax credits.
Conclusion
The above business tax strategies are among the most popular and effective for small businesses. It is however important to note that there are many other business tax strategies small business owners can consider. This article should therefore be used as a basis for further research.
Let’s face it. Very few people enjoy paying taxes. If the amount business tax your business pays on a yearly basis makes you shudder, this article is for you. It is important to note that you can’t avoid paying tax completely unless you want to land in jail. It is however possible to reduce the amount of tax your business pays using a number of effective business tax strategies. Below are 4 effective business tax strategies to consider as a small business owner.
1. Make sure you collect receipts for all business-related activities
This is a very important strategy for reducing the business tax you and your business will be required to pay at the end of every year. As a business owner, you shouldn’t throw away any receipt for business related activities. The parking fee you pay when meeting a client or the lunch you buy clients/employees can equate to huge sums of money at the end of the year. You can be able to maximize your business income tax deductions by collecting and recording such receipts as business related expenses.
2. Manage RRSP contribution
The RRSP (Registered Retirement Savings Plan) offers one of the best income tax deduction strategies for small business. This shouldn’t however be taken to mean that you should maximize RRSP contributions every year. Managing the contributions is a better business tax strategy. RRSP contributions are usually carried forward when they aren’t used in a particular year. You should therefore estimate the total yearly income and decide what RRSP contribution is appropriate. It is important to make a contribution depending on the income that year. For instance, it doesn’t make sense to make a large contribution in a year where your income is low.
3. Maximize non-capital losses
This is another effective business tax strategy to consider. If your business expenses exceed the business income, a business is said to have a non-capital loss. It is important to be able to know how to make the best use of non-capital losses to decrease your business’s tax bill. It is possible to use Non-capital losses to reduce the amount of tax by carrying the loss back 3 years or forward up to 7 years. It makes sense to carry non-capital losses backwards to recover tax you have already paid or carry the losses forward to reduce large tax bills in the future than to use the non-capital loss advantage in the year capital loss occurs.
4. Maximize charitable income tax credits
Charitable donations made to registered charities among other qualified donees earn businesses tax credits. It is important to note that donations above $200 offer more tax credits since they are assessed at higher rates. To maximize the charitable income tax credits, small business owners should consider giving more to registered charities i.e. 5% of their income. It is however important to note that making donations to non-registered charities and political parties don’t result in tax credits.
Conclusion
The above business tax strategies are among the most popular and effective for small businesses. It is however important to note that there are many other business tax strategies small business owners can consider. This article should therefore be used as a basis for further research.