Owning a business can be a lot of work. You’re a wearer of many hats.
And because you’re so busy focusing on marketing, scheduling and getting the day-to day business done, sometimes you drop the ball on other areas … for most businesses this tends to be bookkeeping and tax planning.
This is usually because they aren’t of immediate concern. It is easy to say “I will get to it another day, but first I have to _____.” But proper bookkeeping and planning are critical to optimizing your bottom line.
And unless you have a background in business, figuring out where to start can be daunting.
To help, here’s a list of considerations and actions that you should make a top priority when it comes to planning.
1 - Keep Track of Your Receipts
If you want to take advantage of all of the tax credits and deductions available to you to reduce your tax owing, you need to collect all of your business-related receipts. Even if you are not sure, it’s better to keep the receipt and ask your accounting and tax professional at a later date. They can always exclude it if it is not eligible.
Allowable business expenses can include but are not limited to:
- Parking fees from a meeting
- Letters you mailed
- Supplies for your office
- Rent and related utilities
- Advertising
- Start-up costs
- Meals and entertainment
- Cost of operating a business vehicle
- And more.
If you can organize them by type of expense. If this isn’t something you have time to do, simply keeping them all in one place will still make year end and tax planning easier.
Not only will keeping your receipts ensure you claim every amount possible, it will also ensure that you are prepared if the Canada Revenue Agency (CRA) comes knocking.
2- Research Tax Credits and Deductions
There are a lot of tax credits, deductions and benefits available to small business owners but, unfortunately, not everyone is aware of them and sometimes they get missed.
Before filing your taxes (and even earlier so you can ensure you have the right documentation) research the available tax credits and deductions or reach out to a tax planning professional to find out what you should be claiming.
From the basic business expenses listed above to special credits for small business owners to claiming a home office, there are several saving opportunities that will ensure more money goes back into your business.
3- Optimize CCA (Capital Cost Allowance)
As a business owner, you likely have capital assets - assets which have a life longer than one year and are not planned to be sold in the course of the year – this includes equipment, machinery, vehicles, computers, buildings, furniture, etc.
These assets are treated differently than operating expenses such as ink, pens, stamps, rent, etc. as the value of these expenses is not deducted in a single year but throughout the life of the asset.
When deciding how much CCA to claim, you will want to consider whether you have any non-capital losses, which exist when your expenses exceed income. This is because non-capital losses have defined carry-forward and backward amounts while CCA has no such limitations – it is not a mandatory deduction. As such, it may be a good idea to wait until these non-capital losses have been claimed before claiming CCA.
There are many benefits that can be taken advantage of if you decide to incorporate your business, one of which is a lower tax rate. In Ontario, an incorporated business pays 13.5 to 26.5% on business income while sole proprietors can pay upwards of 50% (see CRA website for most up-to-date tax rates).
Incorporating also provides limited liability so that your company is considered a separate entity from your personal assets, adding additional protection in case of an accident or lawsuit.
Accountants and professional tax planners have the expertise to help you quickly identify areas of most importance for your unique situation.
They will be able to find tax savings opportunities, help you keep your records organize and ensure you have everything you need to avoid any future issues.
While you can wait until tax season to find a professional, by then you may have missed opportunities to put more money back into your business. The sooner you connect, the better prepared you will be.
For more information on record keeping, claiming business expenses, CCA, incorporating or any other business-related questions, contact us today!
