Tax Tips & Advice For Small Business Owners

Author

By Tim Rose - Owner of The People's Bookkeeper

There are lots of ways for you as a business owner to ensure that your business is growing effectively. You know how busy things can get, and it can be so easy to get distracted by the many tasks you are doing each day. It's not your fault. We need to make sure as business owners that we are keeping our eye on the bottom line and leading our companies into the next phase of our growth. That's why I have compiled a list of excellent tax saving tips and advice for you, so that it can take some of the guesswork out of what you should be doing to help your business. A lot of us just don't know these little tips that can save us a huge amount of cash over time, which means more for your business and allows you more room to grow.

The General Rule - Generally speaking, if expenses are incurred to help earn income, then they are tax deductible. Therefore, you should try to deduct everything that you are legally allowed to. It can add up to quite a bit.

Claiming Home Expenses - Normally, you can't claim certain expenses like a home mortgage when running your business out of a building or office. However, if you run your business from home, you can claim a portion of mortgage interest, insurance, electricity, supplies, heating, hydro, repairs, maintenance and property taxes. The percentage allowed is based on the actual square footage of the space used for the business, not the entire house.

Income Splitting - This is a great tactic to use whereby you split income with your family members. Since the CRA may demand to see an employment contract and not just a T4 slip, you need to be careful. Your family member must be doing real work, and you must be doing real paperwork. A nice way to handle the whole situation is to make your family members shareholders of your company and pay them dividends instead of a salary. Setting up a discretionary family trust means that you can choose when to pay your family members, and how much to pay. If one of your family members needs support, or is in school for instance, the company can provide the needed support any time that help is needed.

Giving Yourself More Dividends - A lot of business owners and entrepreneurs don't take advantage of the big tax savings that are possible by paying themselves dividends. Depending on your location, you can take between $30,000 to $40,000 in dividend income before you start paying taxes. In your early days especially, this can be a wonderful way to make sure you get more money in your pocket and save a lot in taxes. As your needs change year by year, you can adjust your salary/dividend mix to suit your own needs.

Keep Detailed Records Of Vehicle Repairs - In Canada, corporations can pay mileage to their employees. Sole proprietors need to keep a detailed log of their expenses. They can then deduct the percentage used for the business. If you spend $5,000 on the vehicle in the year and use it for the business 50% of the time, then you can deduct $2,500. Obviously, this can add up over the years to save you a lot in taxes along the way.

Travel Expenses - If you're going to a convention or large business event, you are generally allowed to deduct expenses if it is directly related to your business, and it's within reason. For example, if a chef was going to a food and cooking convention in another province, it would be deductible. However, if the chef decided to go to a convention in Australia, it would likely not be deductible. The CRA also has rules regarding additional expenses that are not allowed. While you can deduct the full cost of your plane tickets to the convention, you cannot add on personal days, or extra hotel days beyond the actual dates of the convention. If your spouse decided to tag along, their ticket would not be deductible either. Don't be afraid to claim your travel expenses, it can save you a lot of money over time. Talk to your accountant and bookkeeper today if you are unsure.

Meals & Entertainment Expenses - In Canada, meals and entertainment are 50% deductible. You should take full advantage of this when you can, since it gives you a great opportunity to meet with clients and grow your business. However, the CRA does has some rules and limitations as to what is acceptable. Allowable expenses include meals eaten with customers, tickets to a concert or event, private boxes at sporting events, hospitality suites, cruises, fashion shows, and the costs of entertaining guests at sporting, social, or night clubs. Taxes, gratuities and cover charges are also included in entertainment expenses. Deductions that are now allowed include club dues or costs incurred using recreational facilities. You also cannot deduct season tickets for sporting events unless you can prove that it's for promotional use. You are also not allowed to claim meals if you are outside your sales territory or on a vacation.

As you can see, there are many ways to save a lot of cash for your company. If you weren't aware of some of these items, then talk with your accountant and get their advice today. There are so many ways you can save and put that extra savings either into your own pocket, or back into your business to grow. Having the freedom to do more with your company is a great feeling, and if you aren't doing these simple things yet, then get started now. It's never too late, and it's worth the time and effort. It's far more important to see that extra money in your pocket, especially when it can help your family and friends if needed. You can even invest it into other businesses and grow in ways you never expected.