We’re going to talk about how to minimize your income tax owed when you’re a business professional but talking about such a broad topic requires a brief caveat. The advice that we’re going to give here is general – there are deductions a dentist might be able to take that a general contractor could not, just as there are deductions a lawyer might have access to that an accountant does not. Keep in mind that the best way of minimizing your year-end taxes is to hire a professional who can cater a strategy to your individual needs. Our tax accountants in Winnipeg can do just that.
Bookkeeping can seem like drudgework, but it’s absolutely essential. If there’s nothing else you pick up from this article, understand the importance of bookkeeping. Keep every receipt that you think is even tangentially related to your business operations, then file them. You want to file them two ways: physically in folders, and digitally. There is a plethora of different bookkeeping software available on the (relatively) cheap, and they can help automate the filing process. Filing by expense type, by date, and by cost can all be helpful.
For those who aren’t aware, here’s a brief description of capital cost allowance (CCA). You’ll sometimes acquire depreciable property, anything from a building to dental tools. As these properties depreciate, you can write off a portion of their costs on your taxes. CCA is pretty complex, and what can be claimed, when it can be claimed, and what percentage can be claimed can all change as new laws are written and as the years go by. Here’s a brief primer on CCA claims. Read it over, and group your depreciable property receipts in the appropriate classes.
Consider Your Business Structure
Incorporation can have a number of advantages. Incorporating can limit your liability, and it can drastically reduce your tax rate. There is a disadvantage, however: the process of incorporating can be lengthy and costly, as you’ll need a number of professionals to assist you in the process. You’ll need to weigh the pros of incorporation, including the lower tax rate, against the cons of incorporation, including the ongoing costs that include filing annual reports. Incorporating should generally be considered if your business is already profitable enough that the decrease in tax rate will offset these costs.
For your personal income tax, it can be a good idea to income split if your partner’s income is much lower than yours. Basically, income splitting can put you into a lower tax bracket, but it’s not nearly as easy as it was a few years ago. Fortunately, there’s a number of other strategies that you can use to effectively split your income.
There are a number of other strategies you might employ, from maximizing your contributions to TFSAs to making charitable donations. Again, it’s worth noting that strategies vary wildly depending on your exact circumstances. The strategies listed are simply general strategies that might work for you.