As the fiscal and tax year draws to a close, its important to review your business tax situation to see what you can do yet to minimize the income tax youll have to pay. Use these six year end small business tax tips to implement tax-saving strategies before the New Year.
Small Business Tax Tip # 1: Maximize your Capital Cost Allowance claim.
Purchase necessary equipment and technology now rather than waiting for the new tax year to start. Although youll only be able to claim 50 percent of the normally allowable Capital Cost Allowance on your new assets, youll still be increasing your Capital Cost Allowance for this tax year and setting yourself up for an increased CCA claim in the following tax year. For more on maximizing your Capital Cost Allowance claim, see 8 Tax Strategies to Maximize Your Business Income Tax Deductions.
(And you'll want to bookmark this page so you can find it easily when you're ready to figure out your Capital Cost Allowance claim: How to Calculate Capital Cost Allowance.)
Small Business Tax Tip # 2: Delay disposing of depreciable assets.
If youre planning to dispose of depreciable assets, such as manufacturing equipment or computer equipment, dont dispose of them until the new year. Otherwise, youll be reducing your Capital Cost Allowance Claim for this tax year.
Small Business Tax Tip # 3: Delay or defer income.
Any income your business receives in January rather than December will reduce your business income for this year thereby reducing the tax on your income. Delaying or deferring income makes especially sound tax sense when your business income is higher than usual, or when the tax rates in the coming year are going to be lower.
Small Business Tax Tip # 4: Increase business expenses.
Another way of managing your income for the year is to increase your business expenses. Think about your upcoming needs for products or services and fill them now. Review the categories of potential business expenses, and see if your expenses are low in any one area. Its certainly never too late, for instance, to do some more advertising or promotion for your business.
Small Business Tax Tip # 5: Make your maximum RRSP contribution.
This is the best available tax deduction for any business set up as a sole proprietorship or partnership. In any given year, you can contribute up to 18 percent of your earned income, and your RRSP contribution is deducted directly from your income. If you dont have an RRSP, theres no time like the present to set one up. For more on the RRSP as a tax deduction, see RRSPs: The Best Income Tax Deduction for Small Businesses.
Small Business Tax Tip # 6: Maintain your calendar year reserve.
Thinking of winding down your business operations? Rather than closing down your business before the end of this year, wait until next year, so the remaining portion of your calendar year wont be taxed until the following year. Thats right; staying in operation for a few more weeks will defer this income inclusion for a year.
If you're an American citizen paying taxes in the United States, have a look at our About.com Business Finance Guide's Year End Tax Tips.
We can't avoid taxes, but it's wise business practice to minimize the income tax payable. Putting these six tax tips into effect during the waning weeks of the tax year will help you reduce your income taxes and get a jump on next year's tax planning.