Little Known Tax Tips Every Small Business Owner Should Take Note Of
Tax season can be overwhelming for the average individual, let alone small business owners. Educating yourself about which benefits you are eligible for and which deductions you should be taking advantage of is no easy task.
Every year we encounter business owners who have missed out on several opportunities to maximize their deductions—and, as entrepreneurs ourselves, we know how much that hurts.
As we prepare for the upcoming tax season, with our most experienced and skilled team yet, we want to let you in on a few tax secrets that may end up saving you hundreds on your next return.
Maximize Your Medical Deductions
A lot of professionals don’t pay much attention to medical expenses on their tax return because they are often covered by insurance. But small business owners don’t have that luxury. Things like prescription medication, dental work, and prescription glasses or contacts are common medical deductions. However, in order to qualify for the deduction, your medical expenses must exceed 3 percent of your income.
In other words, if you’re not covered by an insurance plan, plan to get as many deductible procedures done within the same 12-month period. That means buying a year’s worth of contact lenses, getting a new pair of glasses, and ponying up the cash for all of those dental procedures you’ve been putting off. It may seem like a dent to your personal budget in the short term, but it will help come tax time.
Make the Most of Your Home Office Space
If you’re self-employed or run your business from home, you can claim a portion of your living space under two conditions: The work-space must be your principal place of business or used exclusively for the purpose of earning income, or the space must be used on a regular basis for meeting clients.
To calculate the percentage of work space expenses you can deduct, most people use the square footage of their work space divided by the total square footage of their home. The more rooms you use, the bigger the write-off. Our advice? Think critically about how you use the space in your home for work, especially if you have clients coming and going.
Prove Your Work Ethic to the CRA
One of the best pieces of advice we can offer to entrepreneurs is to make a habit of capturing the context of your business on your receipts. For example, if you go out for a client meeting at Tim Hortons and buy your client a coffee, make sure to write down the client’s name and brief nature of the meeting on your receipt. That way, when you submit your expenses, you’ve provided the CRA with proof that you aren’t just trying to claim your morning caffeine fix (which, sadly, is not deductible).
Also, make sure you are using proper receipts for your expense filing. Debit slips are only proof that you paid—you need to show that HST was charged in order to claim it.
There’s a reason over 80 percent of small business owners turn to an outside firm to help them with bookkeeping and tax filing. Every business operates completely different—just like the individuals that run them. With the help of a trusted team of advisors, you too can maximize your tax return.
The Blue Sky team will help you master these and many more tax tips. Get in touch with us to get started on your return before the deadline: (289) 466-5210.