Tax season is usually a stressful part of running a business. However small businesses are eligible for tax deductions. Home office expenses, mileage expenses, and telecommunication bills are eligible for tax credits. With professional tax services for small business, you can maximize your tax deductions and reduce your tax bill. To reduce your business taxes, here are steps you can take:
Deduct Whole Business Expenses from the Taxable Income
If you own an incorporated business, your tax rate may vary based on your income. For instance, in 2021, a rate of 13 percent is imposed on the incorporated business’s first 500, 000 taxable income if its employees worked more than 5500 hours in a year. If business income exceeds this amount, its tax rate is up to 26.5 percent. So, a corporation will try to keep its taxable income below $500, 000. This is possible by:
- Counting the miles. To claim tax deductions associated with the use of company vehicles, fill out a mileage log for every trip. The log must indicate the departure date and place, the arrival, and the kilometers traveled. Make sure you have proof of vehicle use like gas receipts. You will need such documents when a tax audit arises. But business travel does not include your commute from your house to your place of work. A tax accountant can keep track of your business expenses.Â
- Subtract home office expenses. If you have a home-based business, you can deduct some expenses like home insurance, school and municipal taxes, part of the mortgage or rent, hydro, entertainment fees, telephone, home maintenance, or internet fees. Keep in mind the deductions are calculated based on the number of square feet and rooms you use for business activities. You need to meet the eligibility requirements first before you deduct such expenses.Â
- Monitor meal and entertainment expenses. All company purchases are tax deductible, so keep all invoices. For instance, you can reduce corporate taxes using meals. However, not all meals qualify for deductions.
- Take advantage of employee-related deductions. The CRA said that all reasonable expenses employees make can be tax-deductible. Depending on the activity, the cost of equipment your employees use in producing your company’s products or services can be deductible. Also, office expenses are tax deductible. Travel expenses incurred by your employees as required by their job can be deducted from the taxes of your company.Â
- Divide your income. Does your family work for your organization? If so, splitting your income can benefit you in terms of your taxes. This includes paying a salary to a family employee. The amount you pay for a family member you employ is tax deductible.Â
- Pay dividends, bonuses, and salaries to shareholders. For any investment income, paying dividends to your shareholder can lead to a refund to your company. Also, you can save taxes by paying a bonus or salary to the shareholder. The payment is an expense that can help decrease the taxable income of your company.Â
Read also: Future-Proof Your Business with the Right IT Partner
Choose the Right Time When Making Transactions
If you want to make a huge transaction like buying a piece of equipment, do it at the right time to save tax money. You can quickly get a tax deduction when you make this purchase at the end of the year instead of in January next year.
Canadian business owners can explore different tax deductions. As a business owner, you must organize your invoices to deduct them from your tax return. This is the reason you should use business tax services to handle your taxes. An accountant or tax specialist can keep your financials in order, making it easier to file your taxes and optimize your tax deductions.
