5 Tax Tips for the Small Business OwnerBrian Jang ON August 15, 2016
The 2016 tax season has come and gone. And like many, you are probably enjoying the summer months, with taxes being the last thing on your mind. However, just because tax season isn’t for some time, it shouldn’t stop you from preparing for next year—especially if you are a time-crunched small business owner.
Here are some handy tax tips for small business owners to help take the pressure off of the upcoming tax-filing season.
Tax Tip #1. Maintain Proper Records
When tax season is not on the immediate horizon, it’s very easy to let things slide. As a busy small business owner, you’ll want to avoid scrambling around trying to gather up all your business receipts at the end of the fiscal year. So, make sure to save every receipt, starting at the beginning of each tax year. All those little receipts can add up to some pretty hefty deductions. Hang on to all of your receipts and keep track of them in a log. It’s an easy habit to get into that will save you a bundle down the road.
Tax Tip #2. Record Your Mileage
Another way for small business owners to save come tax time is to log the mileage you’ve accumulated using your personal vehicle for business. Make sure to log the date of your business trip, where and why you were going, and how far you drove. It is also a good idea to record the odometer reading of the start and finish of each year to keep track of the total kilometres driven.
Tax Tip #3. Hire a Family Member
Why not? According to the Canadian Income Tax Act, if you pay your spouse or your kids (provided they are old enough) a salary or wage, you’ll be able to decrease your actual income. Hiring a spouse or a teenage child is not only a convenient option to save money, but it is also a great way to keep cash in the family.
Tax Tip #4. Deduct Your Business Meals
Believe it or not, meals bought for business purposes are 50 percent tax deductible. Keep in mind, however, meal expenses have to be kept within a reasonable limit. So if you are thinking about painting the town red with your clients, ordering the most expensive meals on the menu, you might want to reconsider. While the jury is still out on what actually constitutes “reasonable”, a good rule of thumb is to try to keep the cost of a meal to less than $100 a person.
Tax Tips #5. File Your Income Tax Return on Time
It’s always a good idea to file on time. The penalties for forgetting to file your taxes can be severe—and it only gets worse the longer you hold out. If you owe money and miss the deadline, the Canadian Revenue Agency will charge you a 5 percent interest rate on the total amount, plus an additional 1 percent increase for each month of unpaid debt, up to a maximum of 12 months. Neglecting to file your taxes on time in the future will lead to even higher penalties, starting at 10 per cent of the balance owing.
Tax time can be a huge pain for small business owners, as you are no doubt bogged down with the many demands of running you own company. But with a little planning and some helpful advice from your friendly neighbourhood accountant, you’ll be prepared to meet tax time head on next year.
Looking for more tax tips for small business owners? Contact BCJ Group, Chartered Professional Accountants today!