Sole proprietorships are the simplest way to run your business. They are taxed at your regular tax rates as a person. Because of the simplicity of this business structure, many business start this way. As your business grows, there are tax benefits to setting it up a corporation. I will discuss the advantages of corporations in an upcoming post. Here are some tax saving tips for business owners.
Sole proprietors are usually familiar with the basic deductions allowed the the CRA. You must save your business receipts and record the who, what, where, and why along with the date, and file them in an organized manner. Things get a little tricky when you start considering deductions for home office expenses, capital cost allowance (CCA) deductions, vehicle expenses, meals and entertainment, and asset purchases and sales. Your accountant can assist you with these deductions. Having a accountant who is familiar with small business will be a big help.
Due to the complexity of the available deductions, it is not a surprise that Revenue Canada keeps a close watch on businesses that can claim these deductions. Again, an experienced accountant can help you keep claims in the range that Revenue Canada generally considers to be normal. They have calculated ratios for all of these areas.
Shelter your profits
Once your business is showing a profit, it may be time to begin a program of sheltering these profits. After working many long days, you probably don’t want to hand over a large part of your earnings to the CRA. In addition to maximizing RRSP contributions, additional tax planning strategies can help keep more of your money for self financing the future growth of your business. Corporations can again assist in this area.
There are income-splitting opportunities that may reduce your tax burden and asset buying strategies to take advantage of. Wise tax strategies should always be a major component in any business owner’s wealth building program.
As always, you need to seek professional advice before embarking on any tax planning strategy.