6 tax tips for small business owners

There are palpable benefits to owning one of Canada’s 1.19 million small businesses. You get to be your own boss, make your own hours, plus, believe it or not, there are numerous tax-saving strategies available to you.

That being said, the never-ending to-do list that comes with running your own company doesn’t leave a lot of time to parse out strategies.

Here, we offer you 6 smart tax-saving tips that could save you a tidy sum by the end of the year.

1. Stay up-to-date on your bookkeeping

Keeping your (many) financial records in order through sound, sane bookkeeping is one of the best ways to prep efficiently for tax time. Being organized also helps you stay compliant, meet deadlines, and will prevent you from having to contend with punitive measures like frozen bank accounts. Not to mention, it’ll lower your stress levels. Hot tip: going paperless can make it a lot easier to find and review specific documents.

2. Be aware of all available tax deductions

Tax deductions are your best friend. In some cases, qualifying for enough of them can even bump you into a lower tax bracket, thereby reducing your taxes payable. So do it already: claim every expense you can, no matter how small, because it adds up. Here are a few, to get the wheels turning: accounting expenses; advertising fees; business supplies; delivery & shipping; home office costs; independent contractors; travel; research & development; salaries; rent; utilities; commercial memberships; bank charges; even bad debt.

3. Know thy tax credits

While a tax deduction reduces the amount of income you have that is taxable, a tax credit is a direct reduction in the taxes you owe. While deductions represent percentage-based reductions, tax credits are usually a flat rate reduction. Familiarizing yourself with the eligibility requirements for Canadian small business tax credits may just bring unexpected rewards: you won’t know if you don’t look.

4. Use a TFSA and RRSP for your savings

To maximize tax breaks, you can contribute to RRSPs, which lower your taxable income. And any growth or earnings on your investments in TFSAs are tax-free, providing additional savings without the nagging worry of future taxes. Ultimately, contributing to a combination of RRSPs and TFSAs offers the dual benefit of immediate tax savings and tax-efficient growth for long-term financial planning (i.e., retirement!).

5. Employ your family members

It may seem like a bad idea, but maybe it’s not. Consider hiring your spouse or children to potentially benefit from income splitting. Canada’s progressive tax system offers an incentive to split income with family members who are in a lower tax bracket. In other words, paying a salary to a spouse or child who pays a lower tax rate than you can create net tax savings. Additionally, employing family members may allow you to deduct their salaries as a business expense, further reducing the taxable income of your business. Before attempting this, however, be sure to familiarize yourself with the CRA’s regulations to ensure compliance.

6. Make sure you have the money to pay your taxes

It can be challenging to estimate how much you’ll owe in the way of taxes, but knowing roughly how much you’ll need to set aside can save you a lot of stress—and prevent penalties for late payment. There are many tools out there that can help you come up with solid estimates. Once you know, creating a separate tax savings account and regularly setting aside an adequate portion of revenue is all you need to do to have your own back!