A company’s net tax obligation is inversely proportional to its income after subtracting the regular tax deduction. It should go without saying that, as a CEO, you want to maximize business profitability while minimizing your tax burden. You can achieve this with the help of specific legal accounting services.
There are various legal ways for a company to reduce its taxable income. Businesses in Canada can lower their taxable income in two ways: they can use income tax deductions or get tax credits for doing certain things.
There are various legal ways for a company to reduce its taxable income. So, what’s the point of lying, to begin with? We’ll go through many credible strategies for lowering a company’s Canadian tax burden.
1. Keep Every Receipt
You can lower the amount of money you have to pay taxes on if you keep and file all receipts for purchases made for your business.
Keep in mind that the Canada Revenue Agency (CRA) occasionally refuses to accept credit card bills as proof of spending. You must keep the originals in case the CRA seeks a copy.
2. Improve Your Donation Tax Benefits
If you give to a charity that is known in Canada, you may be able to get a tax break. In the same way, since gifts over $200 are taxed at a higher rate, giving more will give you a bigger tax break.
To get the most out of your tax benefits this year, you might want to give more money to charities that qualify. If you make $30,000 per year, a 5% contribution—$15,000—would offer a significant boost to the lucky charity. It is not difficult to make a significant difference. On the other hand, you can’t get a tax break for the money you give to political parties, non-profits with headquarters outside of Canada, or groups that started in the United States.
3. Make Your Spouse Your Shareholder & Confidant
Third, make your lower-earning spouse a shareholder in the company. One of the five ways allowed in Canada to lower company taxes is to make your spouse an owner. If your spouse is an investor in your firm and does not have any other sources of income, he or she is entitled to up to $40,000 in tax-free dividends from your company each year.
Even if your spouse has a normal job but earns less from your business, offering them dividends might still benefit your family because it reduces their taxable income. This is because your tax bracket differs from that of your spouse.
4. Advertise Your Business
The fourth strategy is to advertise your firm while receiving a tax break. All advertising costs and costs spent to get free publicity or free gifts to give to customers are tax deductible. Finally, 50% of the cost of business-related meals and entertainment, such as those used to court and entertain clients, is tax deductible.
5. Exercise Caution While Preparing Your Retirement Finances.
Canadian business owners are strongly encouraged to save money in tax-free accounts like the Tax-Free Savings Account (TFSA) and the Registered Retirement Savings Plan (RRSP).
Your yearly payment will fluctuate based on changes in your annual revenue. By putting money into a tax-deferred retirement savings plan, you can lower the amount of your income that is taxed and benefit from growth that is not taxed.
Finally, hiring a corporate tax accountant may be a huge help with managing your company’s finances and completing tax reports. Because of their knowledge, an experienced corporate tax accountant will know which of the numerous potential tax-cutting strategies is ideal for you and your firm. They will be happy to help you with the income tax return for your business. If you want strategic advice, ensure you find a corporate tax accountant in Canada who is fully licensed.