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End Of Year Tax Planning Strategies For Small Business Owner
1. Division of income
In Canada, taxpayers are subject to a system of tax brackets. For every dollar earned, a different tax rate may apply depending on the tax bracket the additional income is in. In other words, people with higher incomes will have to pay higher Tax Planning near me on a portion of their income.
To help combat the tax implications of earning more, business owners who may employ a spouse or their children should consider dividing their income with family members. This will help utilize any lower tax bracket rooms that may be available through other family members and reduce your overall personal tax bill for the year.
It should be noted that relations on payroll shouldn't be overcompensated. A good policy is to pay family members fair compensation for work performed.
By the sprinkling of dividends:
This strategy can also be achieved by restructuring the shares of the company. To achieve this goal, assign different classes of non-voting shares to family members to pay dividends to members with the lowest ...
... tax bracket. The result is that corporate income will be taxed at the lowest possible tax rate.
2. Optimize the Acquisition Schedule of Major Capital Assets
Under Canadian tax law, capital assets are depreciated based on rules specified for several predetermined asset classes. While each class is different, most classes are subject to what is known as the mid-year rule. When the mid-year rule applies, a business can only claim half of the annual depreciation in the year of acquisition.
With this in mind, companies that plan to buy significant assets near the end of the year should do so before the end of the fiscal year. With this approach, the company will be able to use full amortization much sooner. If the purchase of an asset is delayed until next year, the business will have to wait a full fiscal year before the maximum depreciation rate can be used.
3. Compensation split: dividends vs. salary
In recent years, a series of changes have been made to the tax system, reducing the difference from a tax perspective in the receipt of dividends or salary compensation. Currently, the after-tax cash received at the individual level is largely the same for both salaries and dividends in most cases.
That being said, those who earn a salary are still subject to the Canada Pension Plan payment. For many business owners, this means paying the maximum amount for both the personal and corporate portions of the CPP. For 2015, the maximum contribution amount is nearly $ 5,000.
Historically, those on the payroll never receive dollar-for-dollar value for their contributions.
The benefits received during retirement are usually only a fraction of the amounts contributed. As such, business owners currently receiving a salary should consider taking dividends in lieu of salaries. Under a dividend compensation approach, there is no requirement to pay CPP. The dividend recipient is free to take that income and invest for retirement on their terms.
One caveat to this approach is that dividends do not create an RRSP contribution space in the same way that salaries do. Individuals seeking additional space for RRSP contributions should consider a strictly salary or hybrid approach to compensation. Talk to your financial advisor to determine which approach is best for you to achieve your financial goals.
4. Home office expenses
If you work from home, you may be able to deduct a portion of your home office expenses, such as utilities, insurance, rent, or property taxes. However, there are rules to follow:
The workspace must be the individual's primary place of business, that is, more than 50% of the time.
The workplace should be used exclusively for business income and should be used on a regular and ongoing basis to meet with clients, clients, or patients of the individual for the business.
Home office expenses can only be deducted from the home-based business and cannot be used to create a business loss. The portion of the otherwise deductible expenses related to a workspace that cannot be deducted in a fiscal year can be carried over as long as the above two conditions are met on an ongoing basis.
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