Tax Tips for Businesses
Filing taxes for small and medium size businesses can be a headache. Smaller business owners have the added burden of filing their business taxes, often as well as personal taxes.
The #1 grossing bank in Canada, RBC Royal Bank, through Dale Johnson of BNN have provided the following list of a few tax tips for small business owners:
· File income tax return on time and online: It’s important to comply with filing deadlines to avoid paying a late-filing penalty. This penalty is a minimum of five per cent of the balance owing on your return, plus another penalty of one per cent 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 (meaning, expenses exceed income for the business) 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. Rather than use it in the tax year that the capital loss occurred, it may make more sense to carry the non-capital loss back up to three years to recover income tax already paid, or to carry it forward to offset a larger tax bill in the future.
· 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 ready to file.
· Income splitting:The income splitting tax strategy is an opportunity to take full advantage of the marginal tax rate disparities. The higher your income is, the higher your marginal tax rate. By 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 all year-round, and if used with online tax software at tax time, all the business’ financial information can be easily moved into the relevant tax forms. Using a dedicated credit card for the business makes it easy to separate and track expenses for ease of filing. Using a dedicated business credit card makes it easy to separate and conveniently track expenses for ease of filing.