I've got a most exciting topic lined up for you today!
Okay, maybe not so exciting! But definitely a much needed practical strategy for business owners. One that is pretty vital to cash rich exits from business.
Last week, we dealt with the need for a marketing audit
This week…
Let’s talk TAXES.
As we dive deeper into practical strategies to ride the recessionary storm in front of us, taxes are pretty key. One seen by many business owners as an obstacle.
Obstacle
Taxes
Opportunity
Tax Planning
Paying taxes is a perennial obstacle.
And in the face of every obstacle, there is an opportunity.
To help show you where the opportunity lies, I’d like to share with you some material from a publication put out by RBC Wealth Management. This is something that is available on an annual basis. I’ll give you the highlights for tax planning for business owners in this article. And I invite you to get your own copy of the publication. Just reach out to me via email or via direct message on LinkedIn and I’ll share the full report with you.
Remember: you need to consider this information as it relates to your personal circumstances. It’s not one size fits all. You are highly encouraged to speak with your qualified trusted tax adviser to determine if any of these strategies are suitable for you, given your unique circumstances.
5 common small business tax planning strategies that you may want to consider before the year-end.
-
Consider an individual pension plan (IPP). If your business is incorporated as a shareholder entity, as an employee of your business you have the option of considering an IPP as a method of saving for retirement life. It's similar to large company sponsored plans; except it's established and sponsored by you. If your company IPPs generally have only one member, that's probably you. However, you should know that certain family members may also participate if they are employees of the company. In order to establish a plan, you must receive employment income from your company, which is recorded on your T4 slip (not dividend income; employment income). An IPP is usually most suitable for those who have significant employment income from their business and are at least 40 years of age. If your company is incorporated, and you're looking for both corporate income tax deductions, and a structured retirement savings plan, then an IPP might be perfect for you. (If this is you, I'd love to chat with you as we offer these at RBC Dominion Securities)
-
Pay salaries before year-end. If you operate your own business, consider paying additional salary (or bonuses) to yourself, and reasonable salaries to your family members who work in the business, before the year-end. This year-end payment constitutes earned income and creates RRSP contribution room for the following year. The payment will also give your business a tax deduction. The salary paid must be reasonable based on the services performed by your family member who works in the business. And a good rule of thumb is to pay your family member what you would pay anyone else, who isn't related to you, for the work performed in the business.
-
Declare bonuses before year-end. If your business is incorporated and you want to decrease corporate income without increasing your personal income in the current year, consider declaring a bonus. Any bonus being declared before the end of your corporation's tax year needs to be paid out 180 days after the corporation's year-end. This will ensure your business will get a corporate deduction for the current year, but it differs when you receive the income personally.
-
Repay shareholder loans. If your business is incorporated and the corporation loaned you money, ensure the loan is repaid before the end of the corporation's tax year after the year the loan was granted. This will avoid being included as your income on your personal tax return. So take care of shareholder loans before the year ends, if you can.
-
Purchase assets for your business. If you intend on purchasing assets for your business, consider making this purchase before the year-end. Any year-end purchase will allow your business to deduct a capital cost allowance, which represents the depreciation on the asset for tax purposes. For most assets, half of the regular allowable capital cost allowance can be claimed for tax purposes in the first year of an asset purchase, regardless of when it was actually purchased during the year. So if you're purchasing it in the next month or so, you get to actually claim an entire year of capital cost allowance.
Remember these common tax strategies as you plan your year-end. And of course, please speak with your qualified, trusted tax advisor to determine if any of the strategies are suitable for you in your circumstances. The information in this article is not intended to provide legal or tax advice. You will need to ensure that your own circumstances are properly considered and that action is taken based on the most recent information.
If you enjoy the audio medium, you’ll find a lot more in the podcast episode here. Have a listen!