No doubt about it, little things can add up to make a big difference when it comes to tax rebates. Half the battle, however, is knowing what those ‘little things’ are so you can get a handle on what needs to be tracked and accounted for at the end of the tax year.
Below are five simple tax-saving strategies that you can start implementing (if you’re not already) to help ease some of your financial tax burden.
1. Collect All Receipts
It’s pretty standard practice to keep receipts when it comes to your big-ticket purchases – but don’t overlook the small things just because they don’t carry the same price tag. For example, did you track the gas money and parking fee paid when you met up with that client yesterday? Or the postage fee from the pamphlets you mailed out last week? How about that bag of coffee you picked up for the office?
These are all costs that you can claim as business expenses on your income tax. And while one $20.00 bag of coffee a month may not seem like a lot, that’s an additional $240.00 a year. It all adds up!
Maximize your income tax deductions by collecting the original receipts for all your purchases that are business related. Remember, credit card receipts are not generally considered acceptable by the CRA so keeping the original receipt(s) is important. Record and file them so you and/or your accountant have easy access to them come tax season.
2. Utilize Your RRSP and TFSA Contributions
If you’re a small business owner, you can create significant income tax rebates by optimizing your contributions to your Registered Retirement Savings Plan (RRSP) and/or Tax-Free Savings Accounts (TFSA).
Income fluctuations will dictate the amount of your RRSP contribution that you should be claiming on your taxes each year.
Since these tax savings are based on your marginal tax rate and can potentially be carried into subsequent years, it’s often more beneficial to save RRSP contributions for years in which you expect a higher income. That way you can mitigate some of what you owe in those higher income years.
Keep in mind that different rules apply if your business is considered to be a corporation, as earning any income in the form of dividends will either reduce or eliminate any RRSP contribution room you might have.
In comparison, a TFSA allows you to protect savings and investment income from taxation. Income and any payout from stocks and bonds is tax-free inside a TFSA which can help curb those taxation rates at the end of the year.
3. Track All Donations to Charity
A charitable donation is more than just a great way to give back to the community – it’s also a smart way to earn tax credits that you can apply to your tax return. Charitable donations over $200 will grant you access to a higher level tax credit because they’re assessed at a higher rate.
To qualify for tax rebates, all donations must submitted to accredited Canadian charities or other qualified donees. It should also be noted that donations to political parties, non-registered Canadian charities, and/or American charities, are not considered acceptable and will not earn you a tax credit.
It’s also important to request itemized receipts from these institutions so that you have a verifiable record of the donations in the case that the CRA wants proof of them.
4. Optimize Capital Cost Allowance To Reduce Your Tax Burden
Did you know that you can deduct the cost of depreciable property you’ve acquired as a business owner over the years? This is known as a capital cost allowance (CCA) claim and it’s a tax rebate that every small business owner should be aware of.
It’s important to note that the CCA is not a mandatory tax deduction, which means you don’t have to claim it in the year that the depreciation occurs. You can use as little or as much of your claim in a particular tax year as you want, and carry any portion that goes unused forward to help counterbalance a larger income tax bill in a subsequent year.
5. Know What Tax Rebates You Can Claim Working From Home
There’s been a huge influx in people working from home over these last couple of years and there is now a home-based business tax rebate that can help offset the costs of working out of your house.
If your home has (1) become your principle place of business or (2) is the place that you earn your business income and is used on a consistent basis to meet your clients, then you can claim a portion of your at-home expenses as business expenses. This includes a percentage of your utilities, such as heat and electricity, home insurance, maintenance expenses, and the cost of cleaning materials.
If you own your home, you can also deduct portions of your property tax and mortgage interest. If you rent your home, you can claim a portion of the rent you pay.
Want To Learn More? IAPC Can Help Optimize Your Tax Deductions!
Part of operating a successful business is knowing the best ways to track, allocate, and save your funds to best support your financial situation. We can help you discover ways to optimize your finances to make the most out of your tax return. Contact us today for more information about anything that we covered in this month’s blog, or any of your personal accounting inquiries.
