1. Take advantage of your business deductions
All expenses that you incur during business operations can be tax deductible. They can range from parking, postage, or even coffee. As long as you collect your business receipts, you can maximize your deductions when filing your return.
If you either have a home office or lease a place, there are a few deductions that you can make that can help you reduce your income tax. For home-based businesses, expenses such as insurance, electricity, phone, Internet are all expenses that can be claimed by you. According to the Canadian Revenue Agency (CRA), any expenses that are incurred while operating your business – be it home or elsewhere, are tax deductible.
2. Use your RRSPs to your full advantage
Using your RRSP is one of the best ways you can reduce your small business income tax. It’s unique in that it’s designed to be used as a long term savings vehicle while reducing your tax rate at the same time. So, if in one year you have a high income, you can determine how much you want to contribute into your RRSP as the more you contribute, the more your income tax is reduced. In a low income year, making an RRSP contribution won’t help so you might as well let the unused contribution carry forward when you need it, so that you can make a larger contribution.
3. Donate to charitable causes
When you donate to charities, you receive tax credits from the government. By giving more to any registered charity, you’ll be able to maximize the tax credits resulting in a lower tax income rate.
4. Pay your family by splitting your income
By splitting your income, you get to take advantage of the different tax rates especially if your income is high. When your income is high, you’re placed on a higher tax bracket, however, if a portion of your income is transferred to your spouse or your child (if they are in a lower tax bracket), you’d be able to reduce your tax rate on your income.
So if your child is going to university, by transferring a portion of your income, you would be able helping them with their school expenses while reducing your tax rate at the same time. Likewise, you can also gift your children any appreciable assets such as stocks, bonds or property. Any capital gains that they receive are taxed in the lower tax bracket.
5. Write off your car expenses
If you use your vehicle for your business, you are allowed to claim any automobile costs such as:
- Car insurance
- Gas
- Parking
- Car maintenance
You have to be aware of some requirements before you can claim any automobile expenses:
- You must have an employee agreement between your business and employee that the car is used for work purposes;
- The government requires you to fill out form T2200, stating this agreement.
These tips will help you lower your tax burden – however, we highly recommend speaking with your accountant about other ways to save on taxes.
