Many, if not most, taxpayers believe that filing their tax returns requires the payment of monies to the Canada Revenue Agency (CRA), among other tax collection agencies, but this is not so – it’s about getting your money back or, at the very least, paying as little as possible.  This is not tax evasion but getting tax deductions (i.e., credits) and informing the government that you have already paid your taxes at the end of the year.

The trick is in applying the following tax-saving measures that you may not have known before.  These tips, however, are just the tip of the iceberg in the complicated and complex world of taxes, thus, the importance of hiring the pros in accounting and auditing - Patricia Cooper & Associates, one of the leading firms in the Durham Region. 

#1 Start a Business

This is not applicable for everybody since starting a business has its risks and rewards that the opportunity to avail of tax credits cannot offset.  You should have a solid business plan that will make your business turn a profit instead of incurring subsequent losses lest you find yourself in an unenviable position.

Keep in mind that, under Canadian tax laws, you can declare as write-offs various business-related expenses including but not limited to your home office, utility costs, car and gas, and kids, perhaps even cat food. But when your business is in the red, these tax write-offs are for naught. 

Tip: If you already have a small business, you should keep close track of the dates with the biggest impact on your taxes.  One of the most important is July 31 when people like small businessmen are required to make estimated tax payments – and the best time to pay your total estimated amount.  This is because you will likely miss making quarterly payments due to your multiple concerns, an oversight that will translate to 5% interest. 

#2 Keep Detailed Records

This is the #1 rule in tax-saving measures because the earlier your tax returns are filed and the more accurate these are in their information, the lesser your risks for paying penalties, surcharges and fines for various tax-related offenses.  The more detailed your tax-related documents, such as income-generating projects that are eligible for write-offs as these are incurred, the more likely that you can maximize your tax credits and minimize your tax payments. 

Besides, tax officials will require supporting documents for the items on your tax returns. Your detailed records will make it fast and easy to produce said documents, thus, minimizing the hassles usually associated with the tax season.  You are well-advised to hire an accounting and auditing professional, if necessary, for appropriate training in a tax-compliance bookkeeping system.  

#3 Maximize Your CCA Claim

The Capital Cost Allowance (CCA) is a tax deduction applicable on the loss in value of capital assets as caused by either obsolescence or wear and tear.  You declare it as an income tax deduction over the capital assets’ estimated lifetime (i.e., depreciation) but it must be emphasized that you cannot declare the claim on your own.  The CRA has specific provisions about CCA including the time of property acquisition and the CCA class it belongs to, among others. 

Tip: Purchase the capital asset (e.g., equipment or technology) now instead of waiting for the succeeding tax year to begin.  You may only be able to file for a 50% CCA on the normally allowable claim on most classes but you can still increase your CCA for the current tax years. Plus, you will also be setting up an increased CCA claim for the succeeding tax period. 

And speaking of depreciation, you should also defer the disposal of depreciable assets until the next year.  Otherwise, you are decreasing your CCA claim for the current tax year and, thus, increasing your tax payments. 

#4 Defer Your Income

While your business may be in business to earn income, you are well-advised to defer income for tax-saving purposes. This is because the higher your income, the higher your taxes may be.  Your decision to defer your income makes good business sense in two instances, namely: first, when you have a higher than usual business income; and second, when the tax rate in the subsequent year is expected to be lower. 

Tip: Arrange it with your clients so that you will receive your income in January instead of December, which will decrease your business income for the current year. 

#5 Increase Your Expenses

You can manage, so to speak, your business income for the current year by increasing your business sense. As a general rule, you can declare as tax deductions any reasonable current expenses that have been paid or will be paying in relation to earning income.  But there are rules what which expenses can and cannot be deducted, such as a current year expense (allowed) and a capital expense (not allowed). 

Tip: Look at your current expenses and then review the categories of business expenses (e.g., business start-up costs, licenses, and salaries) under the tax law. You may be spending less than what can be declared (i.e., “low”) in any category. 

#6 Max Out on Your RRSP or TFSA Contributions

Registered retirement savings plans (RRSP), a holding account for savings and investment assets, provides for several tax advantages that savvy businessmen should take advantage of.  You are well-advised to contribute as much as 18% of your earned income, which will both decrease your taxes payable and increase your savings for retirement; your RRSP contribution should be declared as a business deduction. 

Tax-Free Savings Account (TFSA) is usually applicable for people on the lower income brackets.  Its tax benefits should be maximized, too, considering as its contributions may not be tax deductible but its earned income is tax-free.  Plus, you can contribute up to $5,000 annually with unused contributions carried forward to succeeding years and amounts can be withdrawn from its at any time regardless of purpose. 

In conclusion, maximizing your tax credits and minimizing your tax payments during the tax season should be an easy task if and when you have the knowledge and skills for it.  But not everybody has the relevant tax-related knowledge and skills and so the professionals must be called in – and this is where Patricia Cooper & Associates come in. 

As a leading accounting and auditing firm in the Durham Region, we provide for a wide range of services including consultancy for business start-ups and small businesses, staff training, and taxes preparation as well as Intuit Pro Advisor, E-file, and cash back. Call us now for a free initial consultation and we give appointments to suit your schedule.