Tax time can be stressful for most, especially for time-crunched small business owners. But being informed can help alleviate some of the pressures.
“Understanding what tax credits and savings opportunities are available to business owners and knowing what they can claim is half the battle,” says Sarah Adams, vice-president, Small Business, RBC.
So here are five tips for small business owners.
- File income tax return on time and online: Comply with filing deadlines to avoid paying a late-filing penalty. This penalty is a minimum of 5% of the balance owing on your return, plus another penalty of 1% of the unpaid tax, multiplied by the number of months the return is not filed (to a maximum of 12 months). Consider online tax filing, available 24 hours a day/7 days a week, to save time and hassle in paying federal and provincial taxes and payroll source deductions.
- Maximize non-capital losses: If the business has a non-capital loss in any year, consider when would be the best time to use this loss. Non-capital losses can be used to offset other business income in any given tax year, can be carried back three years, or carried forward for up to seven years. .
- Take advantage of tax credits and deductions: One of the easiest ways to boost tax savings is to take advantage of all eligible tax credits. For example, look at any lunch or dinner expenses, coffee meetings, gas, license and registration fees (if a personal car is used for business) — incorporate these expenses when filing.
- Income splitting: This tax strategy provides an opportunity to take advantage of the marginal tax rate disparities. The higher one’s income, the higher their marginal tax rate. Transferring a portion of that income to a person with a lower income, such as a spouse or child, reduces the marginal tax rate on the higher income.
- Build expense tracking into the daily routine: Avoid scrambling at the last minute to find receipts, consider tracking business finances online. This strategy will help track expenses year-round. Using a dedicated credit card for the business makes it easy to separate and track expenses for ease of filing.