Why You Should Start Year-End Tax Planning Early in 2019
The end of the year can usually find small business owners rushing to fulfill orders, closing accounts, taking care of unfinished projects, and organizing the staff schedule before the holidays. One essential task can be easily forgotten in all this bustle: tax planning.
You might think of tax planning as a tedious and time-consuming task, but remember: ”Spectacular achievement is always preceded by unspectacular preparation” (Robert H. Schuller).
So, if you really want to avoid bad investments and successfully grow your business, you should definitely consider including the year-end tax planning into your annual planning and overall business strategy.
Let’s explore how starting the year-end tax planning early can help your business and how you can do this successfully.
Why is tax planning essential for your business? [9 tips you must know about]
Simply put, tax planning involves catching up with the latest tax news and taking the necessary steps to comply with the CRA requirements, minimize your corporate income tax payable and maximize your deductions.
Prioritizing tax planning allows you, as a small business owner, to take advantage of the benefits of tax laws and to mitigate any financial liabilities and risks that might affect your business and find the best solutions for these in time.
Here are 9 useful tax planning tips that will help you maintain the financial health of your business and boost your income:
- Start with something as simple as finding and organizing receipts, bills, expenses, and bank statements. This will help you determine what your expected revenues and profits are going to be for this fiscal year. Moreover, having this piece of information at hand will enable you to make more informed business and financial decisions that will benefit your bottom line.
- Don’t delay the installment payments until the last minute. You can avoid having to pay for large interest payments by simply making quarterly installments for GST/HST/QST, corporate tax, and personal income taxes. Creating and implementing an efficient thought-through financial strategy is the best way to prepare your business for growth.
- Time your capital assets purchases correctly. The capital cost allowance lowers your taxable professional or business income. How this works: a capital asset purchase - such as buildings, computer equipment, vehicles, and machines - completed at the end of the fiscal year will allow you to take advantage of the write-off much sooner.
- Keep in mind the deadline for filing your corporation income tax return. File your return no later than six months after the end of each tax year - the business’ fiscal period. If the corporation's tax year ends on the last day of a month, you must file the return by the last day of the sixth month after the end of the tax year. If not, you should file the return by the same day of the sixth month after the end of the tax year. You can find more information on this here.
- Don’t forget to make a contribution to your Registered Retirement Savings Plan (RRSP). This is one of the easiest ways to reduce the amount of income tax you have to pay for this year. You can check your CRA My Account or last year’s Notice of Assessment to find your RRSP deduction limit.
- Take advantage of tax deferment. Delaying or deferring income can be of great help when your business income is higher than usual or when the tax rates in the coming year are going to be lower. For example, any invoice your business pays for in January rather than December will reduce your business income for the current tax year – thus reducing the tax on your income.
- Increase business expenses before year-end. Take into consideration your future needs for products/services and fulfill them before the end of the year. Also, make sure to review the categories of potential business expenses and pay attention to existent “low” expenses in any areas.
- Stay informed on tax policy changes. This way you can adjust your tax planning accordingly. One important tax policy change which you should keep in mind is that the federal small business tax rate was reduced from 10% to 9% in January of this year. This applies to business income up to $500,000.
Moreover, starting with the 2019 tax year, there will be new limitations on tax deferral opportunities connected to passive investment income within private corporations. This income represents what businesses earn when they invest excess profits in things like mutual funds and real estate. Another thing that the government announced is that they will also be taking measures to boost capital cost allowance deductions for zero-emission vehicles used by businesses.
- Ask for the advice of an experienced accountant. The tips offered above to improve your tax planning strategy can be better optimized under the right guidance.
- Helping small business owners run their businesses properly and efficiently and see them succeed is our mission. We’ll use our 20+ years of small business experience to help your company stay as dynamic and efficient as possible from one tax year to the next.
Check out how our bookkeeping and accounting services can help you here.
In order to get the most benefits from your tax planning strategies, you have to start this process well before the end of the year. This will not only help you manage the income corporate tax costs for 2020 and even in subsequent years, but it will also help you achieve your ultimate financial and business goals.
Tax planning can prove a rewarding task when approached correctly and when performed at the right time. That’s why we recommend to already start working on your year-end tax planning if you haven’t already.
Do you feel like you’re struggling to keep up with your business tax payments? We totally get it as we know that running a small business can be hard at times. That’s why we are committed to helping entrepreneurs just like you by providing accounting and bookkeeping expertise which allows you to work on your business instead of in your business.
Get in touch with us so we can help you find the best solution for your business!