Tax Tips for Small Businesses in OntarioMarch, 11 2022
Preparing for your annual tax returns requires gathering receipts, financial reports, and statements. Tax preparation is confusing and stressful, especially for new business owners who do not yet have a system in place for tracking income and expenses. A few small business tax tips in Ontario will help you get everything organized and in order, so you do not miss any valuable tax advantages.
The viability of your small business requires you to stay on top of your financial status. A professional tax accountant will help you navigate your way and keep you updated on any new changes in regulations that impact your business.
10 Small Business Tax Tips in Ontario
When you have all the records and documents you need for your small business, you will be able to file your taxes on time and know they are accurate. Below are several tips to further explore:
- Learn which expenses are eligible for tax deductions. Tax laws are designed to give your business a tax break; however, you must be reasonable in claiming expenses. For example, you can deduct mileage for using your car to attend business meetings, but it is unreasonable to expect to deduct all gas expenses every month. You may also have some allowances for working from home, but you are not allowed to claim your entire mortgage payment.
- Track your money accurately and diligently. It is crucial to track your money all year long. Do not wait until the end of the year and try to play catch up. Record every expense no matter how small, and keep all receipts. Hold onto your receipts for seven years. You will need them if you get audited by CRA. The exact method for how you record your expenses does not matter as much as making sure you have the dates, type of expenses, and amounts written down.
- Record income and expenses accurately. Not only will recording your exact income and expenses save you money and alleviate tax concerns, but it is also a practice that will help keep your small business in the black. Updated, accurate records will allow you to make better decisions for your company such as when to hire new employees, increase your marketing budget, or consider an expansion. Investors and lenders will also be interested in this information, and it will allow you to be ahead of the game at critical times.
- Balance the mix of dividends and your salary. As a small business owner, you may pay yourself a dividend or salary, and you get to decide on the amounts. There are pros and cons either way. You may want to pay enough salary to max out your retirement funds, which are taxed at a higher rate than paying yourself a dividend. Your tax accountant will advise you on what choices make sense, given the status of the economy.
- Pay your income taxes monthly. Some small businesses owners are opposed to the idea of having to pay a large lump sum at the end of the year. To avoid this problem, set up the CRA as an online vendor and pay your taxes every month. If the amount is not exact, you can pay the difference or get a refund at the end of the year.
- Open a health spending account (HSA). Health insurance is intended to cover health problems that are financially catastrophic and have low probability. However, health insurance is not the best way to cover minor medical bills such as dental cleanings. A health savings account allows you to save for small health-related bills, and the money is not taxable.
- Pay your family a salary. As long as a family member’s salary is reasonable for the services they provided, you can count their salary as a business deduction. The rule of thumb is to treat family member employees as if they are at “arm’s length.”
- Take advantage of the Apprenticeship Job Creation Tax Credit. Hire apprentices and train them in your craft. This credit can be 10% of the eligible salaries and wages for apprentices. The maximum credit is $2,000 per year for each eligible apprentice. You may claim credit for apprentices who work in a prescribed trade, and when the apprenticeship program is registered with a federal, provincial, or territorial government during their first two years of apprenticeship.
- Rely on guidance from your tax accountant for major purchases. In most cases, you will not be able to deduct for a major purchase in one year. Your accountant will advise you on how to file the depreciation on an item over several years. Also, your tax accountant will know which rates apply to different assets, which are known as capital cost allowance. If you anticipate making a major purchase, your tax accountant will advise you on the best time for doing so to gain the best tax advantages.
- File your taxes by the deadline. Late filing fees start at 5% of the balance you owe on your return and go up from there. You also have to pay a penalty of 1% of your unpaid taxes, which gets multiplied by the number of months your tax return is late. Significant fee amounts can cut into your bottom line. It will therefore be far easier to get your tax return filed on time when your records and financial reports are in good order.
Tax accountants are the best resource for expertise and small business tax tips in Ontario. The key to improving your bottom line and saving money on taxes is keeping excellent financial records and making sound financial decisions. Hence, be sure to keep your tax accountant advised on any major changes in income or expenses throughout the year so they can advise you as things come up.
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