How to Save on Taxes when Doing Business in Vancouver BC
Saving taxes to increase cash flow is a vital part of running a business. To help you manage your income tax returns better, we’ll teach you some tips on how to lower your income tax bill if you’re operating your business in Vancouver BC.
>>>Check out these Tax Saving Strategies from Save Corporation Tax!
10 Income Tax Strategies for Small Business
1. Identify the correct type of tax form for your small business.
To start the process, identify which income tax return form applies to your type of business operation. If your category falls under a sole proprietorship or a partnership, you should declare your business income tax using the T2125 form in the T1 package. This form is separate from your personal income tax form.
Meanwhile, incorporated small businesses should use the T2 form. All corporations are eligible for filing their income tax returns online. If you are not sure, you can always check with the Canada Revenue Agency (CRA) to see if you qualify for online filing. If a Canadian corporation reaches an annual gross revenue of more than a million dollars, they must file their corporate income tax online.
2. Know your income tax due date.
The income tax deadline for sole proprietors and partnerships is up until June 15 where they are required to submit the T1 package. Plus, you also have to pay any owed income tax by April 30. Otherwise, you will incur a penalty. Meanwhile, corporations are required to file within six months following the fiscal year.
3. Get your tax credits.
You can apply Investment Tax Credits or ITC to your small business which will make a difference in your income taxes. Individuals or corporations can apply a certain percentage to some expenditures or acquisitions. There are different types of credit programs such as the Research and Development Tax Credit, Scientific Research & Experimental
Development Refundable Tax Credit as well the Apprenticeship Tax Credit. Choose which one applies to you best.
4. Maximize your charitable income tax credits.
In addition to getting your tax credits, you can also maximize charitable tax credits. If you have any charitable donations to any registered Canadian charitable organization, you earn tax credits. Total donations over $200 provide you with high tax credits because it is assessed with a higher rate.
Hence, you can maximize your charitable tax credits by giving more. Remember, non-Canadian charities do not qualify for income tax credits.
5. Keep receipts for business-related activities.
When you’re operating a business, it may be hard to keep up with all the receipts. However, receipts whether small or big can be useful in the long run. Collect the receipts for all business-related purchases, record them, and file them accordingly to maximize your income tax deductions.
Keep in mind that credit card statements may are usually not accepted as proof of expense by the CRA. Hence, you need to have the original receipts at hand in case the CRA requests for it.
6. Divide your income.
Dividing your income allows you to maximize the disparities of the marginal tax rate. It means that the higher your income is, the higher your marginal tax will be. What you can do to avoid this is to transfer a part of your income to a family member such as your child who earns a lower income to reduce your marginal tax rate.
This type of strategy is practical for families with businesses. For example, you can hire your son as your employee. Since he has a basic personal income tax exemption, he is only required to pay a lower amount of income tax.
However, if you plan to go this route, make sure your claims are still reasonable. You also need to have all the paper works completed if you decide to hire a family member.
7. Maximize your tax deductions.
One of the steps to fulfilling your income taxes is to determine your company’s expenses if it qualifies as an income tax write-off. This type of deductions may vary. You can check the list of tax deductions for small businesses in Canada to enjoy the benefits of additional tax returns.
Meanwhile, home-based businesses also have an advantage in income tax deductions. They are eligible for Business Use-Of Home Deductions wherein the owners are allowed to deduct a certain amount of home-related expenses including electricity and home maintenance among many others. In case you own your house, you can also deduct a portion of your property tax as well as mortgage interest.
8. Maximize non-capital losses.
A non-capital loss refers to when your expenses are higher than your income. You can use this to lower your income tax and can also be utilized to offset personal income in any tax year. You carry it back or move it forward to offset a huge tax bill in the future.
9. Consider incorporating your business.
One advantage of putting up a corporation over sole proprietorship and partnership is due to the taxes. Based on the Small Business Tax Deduction, the income of a Canadian corporation is qualified to a special reduced tax rate. Private small business corporations can claim this small business deduction.
On the other hand, this strategy is more ideal for companies that are more established. So, before you decide if this route is for you, you should understand the advantages and disadvantages of incorporating your business first.
10. Maximize your Capital Cost Allowance tax claim.
Canadian small business owners usually deduct the cost of their depreciable property over a few years instead of doing it yearly using the Capital Cost Allowance (CCA) claim. However, not all owners are aware that they are not required to claim it in that particular year.
A CCA claim is not a mandatory form of tax deduction. Therefore, you can use it whenever you want. You can use it to offset a large income tax in the future. Remember, it’s not practical to use your CCA claim deduction in one year, especially if you have a minimum taxable income.
One way to maximize your CCA claim is to buy and sell your assets. Buy new assets before the fiscal year ends and sell older assets after the fiscal year.
Reducing Your Income Tax
Before you jump in and start following all these strategies, you need to understand that not all tips we mentioned above will work for your small business. You need to study and learn each strategy first before you fully commit to it.
On the other hand, you can use these tips to guide you on your tax planning. These simple and practical strategies can help you reduce your small business income tax effectively to help you succeed in your business.
