Year-End Tax Planning Strategies for Businesses

If you operate a small business or the finances of a larger organization, you may find tax season very frustrating. Each document can reveal missed financial opportunities or unnecessary costs that could make a crucial difference in these difficult economic times. Don’t get stuck in the same spot next year, consult Liu & Associates’ list below for some helpful tax planning tips to mitigate higher taxes for businesses.

EMBRACE TECHNOLOGY

Avoiding tax accounting software and computers is unnecessarily costs you or your business capital that would be better spent elsewhere. From labour costs to fees for late or inaccurate returns, there are incredible savings to be gained by employing affordable, professional computer programs. Not only is most software endorsed by financial experts, it can also catch trends and opportunities that human error might overlook.

USE A FAIL SAFE

Don’t leave your business’ tax return to the last minute or even in the hands of just one individual. Spreading out financial preparation over the year and having another set of eyes can help catch mistakes and potential areas of improvement. Your business may suffer if you fail to prepare for the worst– if you do, you can expect the best!

HIT THE BOOKS

You and your employees should be well acquainted with eligible tax savings and deductions. Being aware of these options early on can help avoid higher taxes than you need to pay. Don’t overlook the value of minor costs added up over time– travel, gas, accommodation, meals, entertainment and even office supplies can often be deducted by businesses and their employees.

FILING SYSTEMS ARE YOUR FRIEND

We’ve all seen the caricature of a small to medium business owner with an overstuffed shoe box of bills, receipts and invoices (not to mention the exasperated accountant)! There is a reason society makes of this situation– anyone with interest in furthering their business should be well on top of its finances. If you are naturally disorganized or easily overwhelmed, there is no better money spent than that which builds an error-free, easy-to-use filing system.

KEEP IT PROFESSIONAL

Never mix your business and personal accounts! This can create a quagmire of documents for you, your bookkeeper or your financial advisor. Clear business records will ensure you are taking advantage of every opportunity.

This list only covers a portion of the financial responsibilities of a business, but if you have any questions: Liu & Associates can help! Our staff is standing by to offer consultation and guidance to keep your business in the black all year round.

Payroll Taxes Explained

If you are a business owner, payroll taxes will be a critical part of your day-to-day business operations. The Canadian government requires all employers to play an active part in processing payroll taxes and ensuring proper funds are deducted from each worker’s paycheck. If you would like to know more about the role that payroll plays in annual taxes but are unsure of where to begin, consider the following key points related to employee payroll taxes:

1. Business owners are responsible

First and foremost, as an employer, you are accountable for being aware of your payroll taxation duties and ensuring that the proper deductions are made from all employee income. When a new worker is hired, fired or experiences a change in status, it is your and your payroll department’s obligation to make sure tax filings properly reflect these changes. Nationwide deductions for pension, employment insurance, and income tax should always be managed by the business owner and payroll staff, not the employee.

2. Owners can set employees and the company up for success

When a new employee starts working for your business, it is best to have them fill out all required paperwork immediately. This will ensure the employee’s paycheck properly reflects their employment status and income at all times. Once initial paperwork is complete, storing all records in a secure place and maintaining organized files for each employee will help alleviate confusion when tax season rolls around.

3. Different types of payroll deductions are available

It is important to know the difference between mandatory and optional payroll deductions. Every employer nationwide must deduct Canada Pension Plan funds, Employment Insurance and income taxes from each of their employee’s paychecks for as long as they are paid by the company. However, employees may also opt into additional deductions and have a larger sum pulled from their paycheck each pay cycle. It is important to carefully record these payroll preferences so that appropriate deductions can be made throughout the year.

4. Life events can require payroll changes

When employees experience a major life event, such as a birth, death, serious injury or other occurrences, they may need to take time away from work. It is essential that your company’s policies for serious events are accurately reflected not only in your employee’s pay stub, but also in the tax deductions that are withheld. When an individual takes extended leave, income tax, pension funds and more must still be withheld from the individual’s income as long as they are being paid.

Staying on top of payroll taxes is a continuous task that requires great organization and attention to detail. If you are a business owner and would like more information on how payroll taxes affect your employees and company, consult Liu & Associates today for additional guidance.

Income Tax Guide To Working from Home

If your business operates out of your home or living space, you may be eligible for credits that can help reduce the taxes you owe each year. Canada Revenue Agency honours your home office or workspace, if you meet one of these two conditions (quoted from CRA’s website in italics):

The workspace is where you mainly (more than 50% of the time) do your work.
You use the workspace only to earn your employment income. You also have to use it on a regular and continuous basis for meeting clients, customers, or other people in the course of your employment duties.

Read on for a summary of tax credits and requirements for those that work from home.

DO I QUALIFY?

Along with the above CRA guidelines, you may be required to provide a form from your employer that specifies the need for you to work from home. Self-employed or small business tax returns generally do not require such a form.

WHAT CAN I CLAIM?

Income tax credits for a home office are very wide-ranging. Here are just a few of the deductible expenses that may be available to those that operate workspaces out of their home:

Home insurance
Property taxes
Utilities
Maintenance costs
Rent/mortgage payment
Housekeeping/cleaning costs

Depending on usage, some or all of these may be entitled to a full or partial tax credit. Examine your home expenses closely and get the best possible tax return.

HOW MUCH OF MY HOME IS CONSIDERED WORKSPACE?

CRA allows you to use a “reasonable basis” to determine the percentage of your home or living space that is used for your work. For example: in a five-bedroom home with one dedicated workspace, you are entitled to claim a fifth of your deductible expenses. Another example: you use an existing living space as a workspace for 12 hours of the day, so you are entitled to claim half of the expenses.

The above guidelines only address a portion of the requirements and credits for those that work out of their homes. For more details, consult the CRA website or your Liu & Associates financial expert. We can help ensure your home-based business will have a maximized tax return every year.

Income Tax Guide To Self-Employed or Small Businesses

In Canada, there are a variety of tax credits available to the self-employed and proprietors of small businesses. In fact, the Canadian Revenue Agency (CRA) deems any self-employed person as the proprietor of a business. As long as you have not incorporated your business (thereby creating a corporation), you may be eligible for the following tax claims. Read on for Liu & Associates’ guide to getting the most out of your self-employed or small business tax return.

EXPENSES

“You need to spend money to make money–“ if it’s been said once, it’s been said a million times… And it’s absolutely true! As any self-employed person or operator of a small business knows, everything from buying equipment to building a client base can make a significant impact on your funds. Luckily, CRA offers tax credits for such expenses. Generally, a non-depreciating expense (ie: stationery, inventory, etc.) is eligible for its full credit for the tax year in which you purchase it. Depreciating expenses (ie: vehicles, furniture, etc.) must have their credit spread over the lifetime of the asset; this involves multiple tax years and is covered under Capital Cost Allowance (CCA).

CAPITAL COST ALLOWANCE (CCA)

If you run a small business or maintain self-employment, major purchases are a fact of life. CRA allows credits for these expenses, but significant items such as real estate, furniture, equipment and vehicles often outlive the tax year in which they were purchased. To account for this, major purchases qualify for Capital Cost Allowance (CCA): a yearly amount– adjusted for depreciation– that can be credited against your tax commitments.

HOME OFFICE

A huge number of successful businesses originally grew out of the homes or living spaces of their founder(s). Modern self-employers or small business operators can claim several different credits. These are available to those that use part of their home as a dedicated workspace or those that consistently work in their living space. Rent/mortgage payments, maintenance costs, utilities, property tax and home insurance are just some of the expenses you can claim if you make use of a home office.

OTHER TIPS

All proprietors should familiarize themselves with the GST/HST requirements for Self-Employed or Small Business
Sole proprietors only need their SIN to file business earnings as part of their tax return; partnerships and corporations require a Business Number from CRA, as well as a CRA Business Account

Still have questions? Contact or visit Liu & Associates today. Our experts will guide you to the best possible tax return for your self-employment or small business.

How to Choose A Personal Or Small Business Accountant

Whether you are starting your first business or taking your self-employment to the next level, choosing an accountant is a vital step to assure your future success. Instead of picking the first Google search result for “accountant,” use this guide to make certain that you are handing your books over to the right people.

What To Look For

While all accountants need knowledge, an excellent reputation is the most essential feature of any accountant. Whether by word of mouth, Yelp review, or a referral list from a professional association (such as the Chartered Accountants of Alberta), it is important to limit your search to accountants that are well known for good work.

Once you have assessed your own business’ needs, compare them with the size and scope of your potential accountant. An accountant or accounting firm with a similar size and structure to your own business is a good starting point to further narrow your search.

Questions To Ask

Once you have shortlisted a handful of potential accounting candidates, set up a series of personal meetings to compare and contrast their strengths and weaknesses. In these meetings, determine how well the accountant matches your needs and make sure to note the following:

Are you licensed? There are three types of licensed accountants: chartered accountants (CA), certified management accountants (CMA), and certified general accountants (CGA). Each certification has a different educational background and varied expertise.
What will you do for me? Some accountants merely review the in-house bookkeeping of a business, though many are often relied upon to advise business decisions and risk management. Find out what your potential accountant expects to contribute to your business and ensure that it aligns with your own expectations.
What do we have in common? Probe your potential accountant for his attitude towards things that matter to you and your business. Is technology the cornerstone of your company? Inquire about your accountant’s familiarity with digital storage or social networking. Looking to aggressively build your business? Find out how your accountant would safeguard you financially.

Make use of these tips to choose the right accountant or accounting firm for your business. Finding the right fit and you will maximize your ability to build a solid foundation and grow it into a sustained success.

Contact the accountants at Liu & Associates today to get started.