Tax planning can sometimes feel like an overwhelming task, especially for small business owners, who have their hands full as is. However, effective tax planning is critical. It can save you a significant amount of money, help you avoid tax penalties, and keep you compliant with the law. In this blog, we’ll discuss some essential tax planning tips for small business owners.
Keep Accurate Records:
Keeping accurate records is crucial for small business owners. By tracking all your income and expenses, you’ll be able to claim deductions, file your tax returns accurately, and avoid audits. You can use bookkeeping document management software, such as LedgerDocs, to help you organize, and keep track of your income, invoices and expenses. Accurate record keeping throughout the year will save you and your accountant hours of time trying to track down missing information, and will ensure that you have all of the documentation you need to get the best tax return possible.
Understand Your Business Structure:
Your business structure determines how you’re taxed. In Canada, if you’re a sole proprietor, you are required to report your business income and expenses on Form T2125 (Statement of Business or Professional Activities) and include it with your personal income tax return. However, if you’re operating as a corporation, you will have to file a separate corporate tax return (Form T2) and pay corporate taxes on the business income.
Partnerships are generally not taxed at the partnership level in Canada. Instead, the partnership income is allocated to the individual partners, who report their share of the income on their personal income tax returns.
Having an accurate understanding of your business structure and the taxation rules around it allow you to plan ahead and ensure you are complying with any rules and regulations to avoid penalties or reassessments.
Plan to Claim All Deductions:
As a small business owner, you may be eligible for a variety of different tax deductions, including office expenses, travel expenses, and equipment purchases. It is smart to have a proactive conversation with your bookkeeper on your unique circumstances so they can evaluate what you may be eligible for. Then you can keep any receipts or and records that may be required for your deductions, throughout the year.
Pay Your Estimated Taxes:
As a small business owner, you may be required to pay tax installments throughout the year to the CRA if your total tax owing for the year is more than $3,000. These installments would be due four times a year, with deadlines falling on the 15th day of March, June, September, and December. Being aware of these deadlines should help you to plan your finances accordingly.
LedgerDocs Helps You Plan Ahead
By keeping accurate records, understanding your business structure, claiming all deductions, paying estimated taxes, and working with a tax professional, you can minimize your tax liability and keep your business compliant with the law. TaxDocs is a powerful cloud-based document management software system that will help you organize your financial documents in time for tax season. For a 14-Day FREE Trial, click here!