Key tax optimization techniques for small and medium businesses
Tax savings represent a critical opportunity for small and medium-sized businesses to improve cash flow and reinvest in growth initiatives. With constantly evolving tax regulations and compliance requirements, many business owners miss valuable deductions and strategies that could significantly impact their bottom line.
Understanding key tax optimization techniques can help businesses retain more of their hard-earned revenue while remaining compliant with Canadian tax laws.
1. Choose the right structure for your business.
Structure your business in a way to best support your business goals (i.e. sole proprietorship, partnership, and corporation). Get advice from an accountant who specializes in corporate structures to help you make the best decision for your long-term success.
2. Deploy cloud-based software for bookkeeping and payroll.
Cloud-based software keeps complete records online for years to come and makes information easily accessible in case of CRA audit. Cloud-based payroll software allows you to pay employees through direct deposit and pay the CRA automatically, which reduces the risk of missing payment deadline and penalties.
3. Hire your family members.
Whether you carry on your business personally or through a corporation, you should consider paying a reasonable salary to your spouse or children. Paying a salary to a spouse or child who pays tax at a lower rate than you can create net tax savings.
4. Deduct home office expenses.
Some entrepreneurs normally spend a good amount of time working from home or without any office location. An accountant can help you to claim these home office expenses and save on taxes.
5. File tax returns on time.
Stay organized and file your taxes accurately and on time. This will help you avoid the 5% late filing penalty, last-minute filing rush, and maintain good standing with the CRA.
6. Pay CRA taxes in instalments throughout the year and amount due on time.
If required, paying CRA in a monthly instalment may help avoid penalties and interest charges. It also avoids stress of paying large amount at the last minute.
7. Claim research and development expenses.
If you are involved in a product or service that qualifies for R&D credit, you should claim this credit (worth between 15% and 35% of your qualified expenditures). If you have excess investment tax credits, you might qualify for a refund. They can also be carried back three years or forward 20 years.
8. Consider moving to the quick method of HST filing.
The quick method is an efficient way to pay lower HST without keeping extensive records. The quick method is normally optimal for service providers who charge HST to customers but do not have many expenses with HST.
9. Hire a tax professional.
Tax planning and strategy is a special skill set. Do not file your own corporate taxes unless you are a tax expert or if your business is inactive and you are filing a zero return.
10. Get involved in your tax filing.
Spend time with a tax planner to strategize and help you understand the credit claimed, Uncertain Tax Position (if applicable), and other items on your return.
For a free consultation with our expert team, please get in touch with us at info@westerncpa.ca or visit our website at:
