Unhappy With the Income Tax Bill for Your Small Business?

If your small business tax bill is too high, try the following tips to bring it down in subsequent years. We all want to pay as little income tax as possible without breaking the law.

 1. Keep impeccable records.

Most of the deductions your small business can claim depend on solid record keeping. To ensure that you don’t miss any opportunities to lower your taxable income, establish a strong record-keeping system and make sure that all of your employees follow it carefully. Make sure that your system includes procedures for collecting and organizing receipts, as well as tracking income and expenses.

 2. Choose the right business structure.

small businessThe structure of your business will change how you are taxed. If you aren’t sure which business structure is best for you, talk to one of the experts at Jerome & Co to learn more.

Keep in mind that a change of entity will apply from the date the change is made forward. It won’t provide you with any retroactive tax advantages. In addition, because some changes of entity may result in an extra tax bill if they aren’t completed carefully, it is important to seek guidance from the experts at Jerome & Co if you are considering such a change.

 3. Make smart choices when you prepare your return.

For many of the deductions you can claim, the CRA will allow you to choose how you will calculate the deductible amount. For example, when deducting home office expenses, you can calculate your deduction based on the actual expenses you incurred during the year or by using the CRA simplified deduction. The same option is available for calculating expenses for business vehicles. With each of these deductions, do the calculation both ways to see which one is more beneficial.

4. Defer your income.

If it is possible to defer some of your income to the following year, take advantage of the option. For example, you may delay income by sending out bills a little later than normal so that they won’t be paid until after the current tax year has ended.

 5. Make use of carryovers.

Some of the deductions and credits your business can claim are limited for each year but allow you to carry over some or all of the excess deduction to the next year. Keep track of any carryovers you may have and use them to reduce your tax bill during subsequent years.

6. Use retirement plans to shelter profits.

small businesProvide your employees with access to a qualified retirement plan to shelter their income from taxes. Providing these plans will also allow you to reduce your own taxes as well by making contributions to your employees’ retirement plans and deducting them from your taxable income at the end of the year. Furthermore, in addition to saving on taxes by contributing to employee retirement plans, you may be able to reduce your tax liability further by contributing to your own retirement plan. Keep in mind that the amount of retirement contributions that can be deducted in any given year will depend on the type of plan, your income, your business’s structure and other factors.

Whether you are establishing a retirement plan for employees or setting up an account for yourself, it is important to seek professional help so that you can be sure that you have selected the right plan and that you are maximizing the plan’s tax benefit by adhering to deadlines, contribution limits and other regulations.

7. Pay deductible expenses early.

If you have deductible expenses that wouldn’t normally be paid until January (or the beginning of your next tax year), pay them a month early to increase your deductions for the current year.

For more income tax tips, or for one-on-one assistance with your small business taxes, please contact Jerome & Co.

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