Tax Tips and Tricks for Small Business Owners in Ontario
Small business taxes with Kamille Smith, Founder of FitnanceIQ
Here are some tips that Kamille Smith dropped for us during her Instagram, live with Jodi-Ann on March 23rd to educate small businesses and answer some burning questions for this tax season.
1. Do you need a registered business before you start to claim taxes?
Registering as a sole proprietorship, freelance etc. is the cheaper route of paying taxes because it goes into your personal taxes instead of registering as a corporation. (if you are a corporation, you can protect your personal name & finances in case you get sued or other issues)
2. Does every business owner need an accountant? If so, when is the best time to get one?
It’s good to have an accountant or bookkeeper on board, especially if you are not good with numbers and keeping up with receipts. It is good to have monthly meetings to keep on top of finances.
3. Should business owners expect to pay taxes in the first years of business?
You will most likely be paying taxes in your first year of business
4. What happens if a business makes no money or takes a loss? How does that affect business taxes?
If you are registered as a corporation, you must report ALL income, even if you made no income or negative income, every time
5. When is a good time for small businesses to incorporate?
Once you have to start adding sales tax, it is an excellent time to consider your business becoming incorporated
6. What are some of the top apps/tools for managing small business finances?
QuickBooks, Excel, Freshbooks, Wave Apps are great tools to keep expenses & receipts; Also having an old-fashioned binder to keep physical papers and receipts.
Kamille’s most important advice for new business owners?
** HAVE A SEPARATE ACCOUNT FOR YOUR BUSINESS **
What are Write-offs?
Write offs are expenses a business owner incurs to keep their business operational. There are lots of well known and not so known charges that you could be writing off in your small business. Here's what Kamille shared during the live.
- Receipts are more important than sales because they reflect things that can make you more money (this is industry-specific, however)
- For example, for real estate agents, giving meals and gifts to clients would be an entertainment expense. However, it is 50%, meaning you can claim half the charges of the whole bill. (tips are not included)
- An expense most people forget is interest and bank charges.
- Write off can lower your tax bracket because the more money you make, whether in your first year or not, you will most likely have to pay more taxes (more money, more problems)
- For example, to prepare for paying taxes, if you make $100, set aside $30 for taxes. (30%)
- If you have a loss, you can report it in that year or carry it forward to another year; it will lower your tax bracket (this is for corporations and sole proprietorships)
- KEEP RECEIPTS FOR AT LEAST 7 YEARS IN CASE OF AN AUDIT
- You can claim internet, utilities if you use a part of your home for your business
What is Tax Planning?
Tax planning is used to predict your tax obligations for the year and find ways to lower your income and maximize your return all by planning ahead. Read a few more ideas below.
- Reviewing your personal and professional goals, have someone on your side aware of your goals Ex. If you make more than $30,000, you need to make sure you file your HST reminisce at the right time; having someone to help can be beneficial.
- Don’t wait until the last minute; it will create frustration for you and whoever is helping you with your taxes.
- Try to meet with someone every so often to keep on top of your planning, taxes, and overall finance due to CRA’s requirements.
4 Ways to Reduce Taxes for Small Business Owners
- Meal & entertainment expenses discussed up top.
- Travel (businesses related)
- Vehicle & Mileage (depending on how you purchased the vehicle if it was purchased under the business or yourself, there are certain exceptions and restrictions, also depending on whether you leased it
- Utilize RSP’s if you’re a sole proprietorship
Tips to Avoid Audits
No one likes to get audited. Here's a tax professionals top tips to avoid being nabbed by the tax man.
- Don’t think that your vehicle is going to be 100% for business use
- Don’t try to scam the government
- They will notice abnormalities
- Be careful with wining and dining (excessive meetings that are not creating revenue)
- Be realistic & keep your personal and business expenses as separate as possible.