6 Year End Tax Tips for Businesses
6 Business Tax Tips for Year End
For business owners, implementing the below mentioned tax strategies before year end would save tax dollars by claiming higher tax deductions against your business income. There is still time left to take advantage of these tax strategies before year end.
Business Tax Tips to be implemented before the end of the year:
- Purchase business assets before the year end - Do not wait until the next year to purchase business assets for your business. If you purchase the assets in the next few days until Dec 31st , then your corporation can claim 6 months of tax depreciation also known as CCA ( Capital Cost Allowance) on assets purchased in the current year.
Let’s take an example of the situation:
Your Business purchases Computer Equipment and systems software to be used in the business on Dec 30th for $15,000. The CCA rate for computer equipment is 55% / year. Even if your company owned the asset for 2 days in the current year 2016, it can still claim 6 months of tax depreciation resulting in a deduction of
$15,000 x ½ half year rule x 55% = $4,125.
$4,125 is a dollar to dollar tax deduction against your business income.
- Delay disposing off depreciable assets - If you’re planning to dispose of depreciable assets, such as manufacturing equipment or computer equipment, don’t dispose of them until the New Year. Otherwise, you’ll be reducing your Capital Cost Allowance Claim for this tax year.
- Make Business Purchases before the year end – If you have to make business purchases such as office supplies, maintenance & repairs, advertising expenses etc., then make sure to do them now to claim a tax deduction for the current year.
- Self – Employment Mileage Reimbursement – As a business owner, you are self-employed. CRA allows you to claim mileage driven for business purposes. You can get reimbursed at the rate of 54 cents for the first 5000 km driven and 48 cents for each additional km driven for business purposes. This vehicle allowance is tax deductible for the business and reimbursed to you as an employee for the business tax free. To support a deduction, you are required to reasonably support and demonstrate the amount of miles you drove for business purposes. Although CRA does not mandate a specific way of keeping mileage records, it suggests maintaining a logbook showing destination, purpose of trip and the distance to and from the destination. So, as an owner manager of your business, make sure to take advantage of this tax deduction before the end of the year.
- Declare Bonus for yourself & family members – If 2016 has been a profitable year for your business and you do not want to pay higher corporate taxes, then declaring a year end bonus for yourself and family members working in your business is a great idea. Bonuses declared before the end of your corporation’s fiscal year can immediately be deducted as long as they are paid no later than the 180th day or 6 months after company’s year-end. Bonuses, like salaries, are subject to deductions at source. This means that withholdings for income tax, Canada Pension Plan and Employment Insurance (where applicable) need to be made and these source deductions remitted to the CRA shortly thereafter after declaration. Let’s take an example of the situation:
Your company makes a taxable profit of $ 120,000 in the current year. The corporate income tax on $120,000 taxable profit would be around (16 %) $19,200.
Now if your business declares a bonus:
Business Taxable Profit (before bonus) $120,000
Bonus to yourself (Owner) $ 50,000
Bonus to Spouse employed by business $40,000
Bonus to Adult Child employed by business $30,000
Business Taxable Profit (After Bonus) $0
The bonus is not payable until 6 months or 180 days after the corporate year end. After paying the bonus, the taxable income for the business is $0 and no income tax owing. However, the income is taxable now in the hands of individuals who received the bonus. Also the source deductions are due to CRA.
- Conduct Holiday Parties - 100% of Meals & Entertainment Deductible – When meals & entertainment expenses are incurred to provide a Holiday party / Christmas party or any event to which employees and clients are invited, the cost of such expenses is 100% deductible against business income.
At Bajwa CPA Professional Corporation, we can offer you professional and experienced tax planning advice. Please visit our website www.bajwacpa.com for the wide range of accounting & taxation services that we offer. Contact us today for free professional consultation.