Six ways to help maximize your company’s bottom line at tax time

For many small businesses, tax season can be a big headache that you just have to get through.

On the other hand, it can be a time of opportunity for you and your company to make some significant savings by maximizing all the legitimate ways that you can reduce the amount of tax you owe.  

I’ve put together six tips that could help you increase your bottom line this tax season.

1. Claim your home office costs

If you work primarily out of your home office or use a space in your home only for earning business income and to regularly meet clients or patients, you could deduct a portion of your home expenses.

These expenses include heat, electricity, home insurance and even cleaning materials. Other deductions include part of your property taxes, mortgage interest or rent, plus maintenance costs and minor repairs that relate to the workspace. 

You can calculate the percentage of these deductions by dividing the area of the workspace by the total area of your home. 

2. Be diligent in claiming all business-related expenses

In general, small business owners can deduct any reasonable business-related expenses, and it’s a long list. So, it’s really important that you save every receipt you get, no matter how small, because they can add up to substantial deductions. 

You should claim all advertising/marketing costs, professional services (e.g., lawyers and accountants), meals/entertainment (generally 50 per cent) and travel expenses. 

Don’t forget to include professional memberships/subscriptions, office supplies, phone/Internet and vehicle expenses (including gas, insurance, repairs/maintenance and loan interest/lease costs). 

3. Claim investment tax credits if applicable

There are several investment tax credits available to companies of all sizes (corporations, sole proprietors and partnerships). If your company qualifies for them they could bring a considerable reduction to your tax bill.

You can apply a percentage of the cost of acquiring certain types of buildings, machinery or equipment in certain parts of Canada, used for qualifying activities like farming, fishing and manufacturing. 

The Apprenticeship Job Creation Tax Credit is worth up to $2,000 per year, per apprentice, for certain trades. 

Research and Development Tax Credits are offered to private companies carrying out qualifying research and development. You don’t have to be in high tech to qualify – research into new products, manufacturing techniques or ways to reduce environmental impact could all qualify. 

Ask your accountant if your company qualifies for any of these tax credits. 

4. Split your income 

If your spouse, common-law partner or child of post-secondary age works for your company, paying them a reasonable salary can bring tax benefits. 

There are two advantages to this; firstly, if your spouse/child is paying a lower tax rate, then the amount of tax paid on this income could be considerably less than what you would have paid. Secondly, this reduction in your income will reduce the amount of income tax you will owe.

5. Incorporating your business

If your business has grown in size and income, it may be time to turn it into a corporation. 

Some small business corporations can qualify for the Small Business Tax Deduction and pay tax at a rate of 10.5 per cent. Other corporations pay tax at 15 per cent.

This can be a good tax strategy if you don’t need to draw all of your profit for personal income and are able to leave some of it in the business. You also have a greater choice in paying yourself in the most tax-efficient way, either by salary, bonuses or dividends. You can use dividends as a way to split income if your spouse is a shareholder in the company. Discuss incorporating with your accountant. 

6. Lease equipment instead of buying them

Leasing is not only a great way to maximize your cash flow, it can also bring you tax advantages. 

If you buy a piece of equipment, you can only write off the interest on the loan (plus the capital cost allowance), NOT the entire loan payment. With leasing, the full amount of the lease payment you make is deductible. This can have a big impact on your final tax bill.

Try investing just a little of your time on these tips – they could considerably reduce your tax bill. 

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James Burns is a freelance financial services writer. With a background in journalism, financial services and marketing, he writes for a wide range of companies across the financial services spectrum. His articles and blogs provide financial advice to small and medium-sized businesses, as well as consumers.

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CWB National Leasing Group Inc. does not provide tax, legal or accounting advice. The content of this blog is for informational purposes only. This blog is not intended to provide, and should not be relied on, for tax, legal or accounting advice. You should consult your own professional tax, legal and accounting advisors before engaging in any transaction. CWB National Leasing Group Inc. is not responsible for any errors or omissions, or for the results obtained from the use of any information provided in this blog. All information in this blog is provided "as is", with no representation, warranty or guarantee of completeness, accuracy, timeliness or of the results obtained from the use of the information. In no event will CWB National Leasing Group Inc. be liable to you or anyone else for any damages incurred as a result of any decision made or action taken by you or anyone else in reliance on any information contained in this blog.