Tax Accountant Milton – Small Business Tax Tips
1. Incorporate your Small Business
Corporations in Ontario pay a very low tax rate of 16.5% on their net income (i.e. after expenses). This low rate of tax is up to the first $500,000 of net income.
On the other hand, individuals in Ontario who are in the highest tax bracket pay tax at a rate of 46.4%.
Therefore, by incorporating you can save up to 30% in taxes.
As a Tax Accountant Milton, I have advised many of my clients to incorporate their small business, because of the substantial tax savings.
For more information on incorporating your Small Business in Milton, please see I’m thinking of incorporating my small business in Milton. Should I incorporate and can you help?
2. Special events
As an employer, you can deduct 100% of the costs of up to 6 special events, such as a Christmas Party, that you have held for your employees. This includes company parties.
Make sure that you keep all of your receipts for the special event in case you are audited by the Canada Revenue Agency.
3. Pay Dividends, says Tax Accountant Milton
The first $38,000 of dividends that you receive from your corporation is tax-free. Dividends are payments made by the corporation to you because you are a shareholder. They are not subject to source deductions, unlike salaries.
While you pay tax on dividends over $38,000, the rate of tax is very low.
In addition, you are not required to contribute to the Canada Pension Plan on any dividend income that you receive, which can save you thousands of dollars. Contrast this to salary, where the tax rate for CPP is 9.9% of earnings.
The disadvantage of dividends is that they do not increase your RRSP room, because dividends not part of “earned income” for RRSP purposes.
You should discuss the option of paying yourself dividends with your Milton Tax Accountant.
4. Company owned / leased vehicle
“If you use your car extensively for business purposes, it’s a smart idea to have your corporation own or lease your car”, according to Allan Madan, Tax Accountant Milton. Corporations can write off 100% of the following for company owned/leased vehicles:
- Repairs and maintenance
- 407 charges
- Lease costs (up to a maximum of $800 + taxes)
- Tax depreciation (30% each year of the cost of the vehicle, subject to a maximum of $30,000 + taxes)
This strategy is much better than owing or leasing your car personally. When you own your car personally, you have to pay for all of the costs related to your car with after-tax dollars, which is very tax inefficient.
5. Home office
If you run your business from home, you can deduct the following costs related to your home office:
- Mortgage interest
- Property taxes
- Condo fees
- Maintenance and repairs
Home office costs are deductible based on the size of your office relative to the size of your home. For example, if your home office is 15% of the total square-feet of your home, then only 15% of your home office costs are deductible.
You should discuss this tax break with your Tax Accountant in Milton.
The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.