Easy Eight Tax Strategies For Small Businesses In Canada:

by | Jan 11, 2024

Taxes are a significant factor that affects all types of businesses. Everybody ought to have their business tax strategies. But, one must be aware of the tax system to plan tax strategies. Insufficient knowledge about the tax system may cause you to run your company’s taxes.

Thus, Yogi & Associates is here to help you with tax strategies for your company. We are here to dispel any doubts you may have about taxation. We will dissect the tax system to ensure you understand it. So, why do you hesitate? Now, let’s get started!

1. Understanding Tax Planning For Small Businesses:

Owners of small businesses tend to think than those of large corporations. Their enthusiasm for their goods and services is contagious. With patience and hard work, they expand their business. Along with all the other beneficial adjustments they make to their company, they should begin developing tax strategies immediately. Developing tax strategies to lower taxes is critical in expanding your company. You save money that you can use to finance other crucial aspects of your company.

2. Eight Tax Strategies for Small Business:

Collect Receipts For Expenses Incurred In Conducting Business:

Preserve the receipts of business expenses that occur at your place of employment. Yet, we are aware of how busy you are with everything else going on in your company. You can use software, such as Dext software, to store all the receipts. You can lower your tax burden and claim your taxes in this way.

Everything you spend on business activities is a business expense. The CRA does not accept credit card statements. Thus, you must maintain track of original receipts to present them to claim a tax deduction.

Home Office Deduction: Maximize Your Business Expenses

You can claim some of your home expenses if you use it for business purposes. The amount of business space you use relative to the size of your home determines the percentage of your tax claim. For instance, the percentage of your home used for business purposes will be 10% if your business occupies 15%.

You may be able to deduct some of the expenses you spend running your business from your home. The expenses include:

  • House Insurance.
  • Supplies for cleaning.
  • Property taxes.
  • Mortgage interest.
  • Capital Cost Allowance.

Incorporate Your Business:

Incorporating your business is one of the tax strategies. There are certain tax rate benefits in incorporating your business. Companies that qualify for the small business deduction pay a nine percent net tax rate. A sole proprietorship subjects all profits to the personal income tax rate.

 The primary advantages of incorporating your company are:

The Federal income tax rate Canada 2024 are:

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Avoid Late Filing Taxes:

Steer clear of late tax filings. There will be steep penalties if you fail to file your taxes on time. The minor penalty for filing your tax return is 5% of the amount owed. Additionally, there is a one percent unpaid tax penalty. The tax multiplies by the number of months you fail to file it on time. Thus, the total cost of this was high. Strive always to file your taxes on time.

Align Your Dividends/Salary.

You get to decide how much money you want to keep as dividends or as a salary as a small business owner. Every option has advantages and disadvantages; the optimal combination depends on your circumstances. For instance, if you max out your RRSP, set aside some for salary. For another part, apply the reduced dividend tax rate. Consider future trends; if a downturn is anticipated, avoid paying large salaries. Striking the correct balance is the key to increased profits.

Non-Capital Loss:

If your business expense crosses the business income limit, it is a non-capital loss. You can use this loss to lower your income tax. The loss can be carried forward for up to 20 years to offset future taxes, applied to reduce taxes for the current year, or carried back three years to recover past taxes. With your tax specialist, decide which option best suits your company’s needs.

Apprenticeship Job Creation Tax Credit

You may be eligible for an apprenticeship job creation tax credit if your company employs apprentices in trades like carpentry, electrical work, or plumbing. It is like a tax benefit for the business. It reduces the amount of taxes you owe. The value of it is as much as $2,000. That means that if you are successful, the amount you have to pay will be $2,000 less than before. Since it takes two years, it is only for recently hired trainees.

RRSP and TFSA Contributions:

Your money grows in an RRSP account without incurring any taxes. You can pay the tax as long as the money is in the RRSP account. This lowers the amount of taxes you must pay. The same is true with TFSAs; there are no tax implications to your money’s growth. You wait to receive a tax break when you contribute money. But your money grows tax-free. You can transfer any remaining funds or investments into your TFSA if your RRSP is complete. It’s an additional tax-favored location for financial growth.

The Bottom Line:

Early tax planning is more than a financial tactic. It’s a long-term, sustainable business growth roadmap. We are aware that keeping up with tax strategies is challenging. But Yogi & Associates’ tax strategies will enable you to use the money you save by lowering your taxes to launch a business. We hope you know enough about tax strategies from our experts. It will help you save money and keep your business running.

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