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Year-End Tax Strategies for Small Businesses


Richard Weber on December 26, 2012 in Advice for Business Owners

With year-end fast approaching, now is the time to review your business taxes in order to minimize your income tax. Here are some tax-saving strategies for you to consider implementing prior to New Year:

1. Defer or delay income

If you receive any income in January 2013 rather than in December, it will reduce your income for the 2012 tax year, and thus reduce your income tax. It is an especially sound idea to defer or delay income if your business income is greater than you had forecast or if the tax rates for the following year will be lower.

2. Increase your business expenses

You can manage your yearly income by increasing your business expenses. Review your imminent needs for any products or services and meet them now. I would suggest that you also review your various categories of prospective business expenses to determine if they are lower in any specific area. There would still be time for you to promote that area of your business before year-end.

3. Profit from your Capital Cost Allowance (CCA) claim

It would be advisable to buy any necessary technology and paraphernalia this year rather than wait for the New Year. Even though you can request only 50 percent of the permissible CCA on any new assets, you would nevertheless still increase your CCA for the 2012 tax year. Also, this lays the groundwork for an increased CCA claim next year.

4. Postpone disposal of depreciable assets

Don’t dispose of any depreciable assets—manufacturing or computer equipment, for example—until the New Year. If you dispose of them this year, you will reduce your Capital Cost Allowance claim for the 2012 tax year.

5. Maximize your RRSP contribution

RRSPs are the best possible tax deduction vehicles for small businesses—sole proprietor or partnerships. Each year, you can contribute a maximum of 18 percent of the income you earn and those contributions are deducted right from your revenue. If you have not yet set up an RRSP, I would strongly suggest you do so as soon as possible.

6. Keep your calendar year reserve

If you are considering closing your business, it would be preferable if you wait until next year rather than doing it at year-end. This will mean that the remaining portion of the calendar year will not be taxed until next year. By remaining in operation for a few extra weeks you will defer this part of your income inclusion for one year.

7. Take advantage of tax deductions pertinent to home-based businesses

If you operate a home-based business there are some definite income tax benefits for you. You may utilize the Home Business Tax Deduction, which is based on a percentage of several home-related expenses including home maintenance and cleaning resources, home insurance, electricity and heat. If you are also a homeowner, you may deduct a percentage of your property tax, plus your mortgage interest.

8. Consider incorporating your business

There are many advantages for sole proprietors and partners to incorporate businesses, the most popular being tax benefits under the Small Business Tax Deduction where you will be taxed at a reduced rate, if you qualify. Nevertheless, this incorporation tax strategy will only benefit your business if it has grown sufficiently to make it a practical move. You must be prepared to offset the costs involved with incorporation and at the same time you should be equipped to leave a decent amount of your business earnings in the corporate account in order for you to profit from a corporate tax deferral.

 

Although it’s impossible to avoid paying taxes, it’s a sound business practice to at least minimize the amount you must pay. By implementing at least some of these tax tips before year-end, you will not only be able to reduce your income tax but also get a head start on tax planning for 2013.

If you would like more information on year-end tax strategies, please contact me at 905-633-6332 or by email at .(JavaScript must be enabled to view this email address)