30 Dec Top 5 Year-End Tax Planning Tips For Small Business [Video]
Although it’s holiday season and you can’t wait to celebrate, it’s also the end of the fiscal year and it’s crucial to make some smart tax decisions can help you save more money. The following tips can reduce your tax bill and could even recover taxes paid in previous years.
Tip #1 – Reasonable Salary
Consider paying reasonable salaries to family members making less money than you.
Salaries are a deductible expense that can lower your taxable income, which of course reduces your taxes payable.
Just to note, the term reasonable salary means paying your family member the same amount that you would have to pay an outsider in the open market.. no more, and no less.
Tip # 2 – Capital Expenditures
Make Capital Expenditures for business.
If you make any capital expenditures for your business, understand that you are entitled to deduct Capital Cost Allowance.. meaning depreciation.. for them.
For computer electronics such as laptops or software, you are entitled to a 100% write off.
Therefore, if you purchased a computer on boxing day this year, you can write off the entire purchase price this year.. which can be a significant discount courtesy of the CRA.
Tip # 3 – Salary, Bonus Or Dividends
Create a suitable mix of salary, bonus and dividends as they are subject to different tax rates.
Although recent changes in tax rates have made things more-or-less even, a scenario analysis need to be performed to understand which combination of Salary, Bonus and Dividends will give you the lowest taxes payable.
Tip #4 – Shareholder Loan
Defer your personal income tax by one year by withdrawing a Shareholder Loan.
Bear in mind that you must repay the loan within the year so that the loan isn’t included in income.
Don’t make a series of loans and repayments as this is against the rules of the Tax Act.
Tip # 5: Tax Loss Selling
Review your investment portfolio before the year-end to see if you can find a tax advantage in taking a loss. Capital losses can be carried back three years or carried forward indefinitely. Tax loss selling involves selling investments with accrued losses at year-end to offset the capital gains realized in your portfolio.
Make sure to make a trade before December 24th to be valid.
So in summary: pay family members a reasonable salary, make capital expenditures, have a mixture of salary, bonus and dividend payout, take a shareholder loan, and engage in tax loss selling.
1. Canada Revenue Agency, Guide T4002 – “Business &Professional Income”
2. IT421R2 – “Benefits to individuals, corporations and shareholders from loans or debt”