December is a busy month for most of us. With the holidays upon us, it’s a good idea for business owners to start thinking about our year end and planning for 2021. By being prepared, there’s real opportunities for tax savings, as well as saving money on your bookkeeping. And, by using a few smart strategies, you may even set yourself up to save money in the next year.
1. Go Shopping
It’s true, shopping before the end of the year has tax benefits!
Capital asset purchases (furniture, computers, equipment etc) made before the end of the year allows you to take advantage of the tax deduction in the current year
Spending money on other business expenses, such as office supplies & advertising by the end of the year will save you money in years of higher taxable income. By maximizing your deductions in years of higher revenue or tax rates, you will reduce your taxes payable.
Also use the opportunity of Boxing Day shopping to save some money.
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2. Get Paid
If you don’t keep up on your invoicing, you’re just delaying payment. You’ll get paid faster if your invoices are correct, sent on time and are followed up on.
At the end of the year, send your customers who have balances owing statements and attempt to collect outstanding payments before the end of the year. If there are customers who you believe will never pay, write off the invoices as bad debt.
Looking to sell a depreciable asset? You may want to make that sale in the New Year so you don’t lose out on your capital cost allowance tax deduction this year.
If your line of business is eligible for cash accounting, you pay tax on your income in the year you receive the money, and not in the period it is earned. Shifting income to a different tax year makes sense in years of higher taxable income or higher tax rates.
3. Break Out the Shoe Box
While you’re busy running your business, those receipts may have been piling up. Keeping your receipts organized can save you a lot of stress, and money.
By far the easiest way to keep up with your expenses is using a receipt cataloging application. Sync your online accounts, forward email purchases & snap a picture of your receipt. A good system will pull the information and organize it for you. Your receipts are all stored electronically, on the cloud. Your accountant can help set you up and get your past year information organized.
If you have a bookkeeper who records your receipts, makes sure your receipts are organized & clear.
4. Pay Yourself
Depending on your business and personal situation, how you pay yourself this year affects your taxes payable. If you’re incorporated, your accountant can advise whether you should be paying yourself through a salary or through dividends.
Also take advantage of income splitting by paying your lower earning family member a salary to minimize taxes paid.
5. Evaluate Inventory
If the market value of your inventory on hand drops, there are deductions that can help offset this.
6. Save & Earn
Open or make payments to your retirement plan by February 28th to get the tax benefit for last year. Always try to maximize your contributions in years with high taxable income. And remember RRSPs are most profitable when you reinvest your tax reduction back into your RRSP.
7. Give Back
Not only is making a charitable contribution from your small business a great thing to do during the holiday season, but it can also be a good idea for your business finances. You can donate not only money but items such as office equipment and other goods. Just remember to get a receipt if eligible.
8. Review Your Payroll
Check your employee data is correct to ensure T4s are on time and accurate. Make sure you’ve recorded all taxable benefits and correct deductions taken. Any discrepancies should be made on the employee’s last pay of the year.
9. Review Your Reports
It’s good to be aware prior to the end of the year of how your financials are looking. Are they up to date and accurate? Review key accounts, ensure tax obligations are recorded & look for tax savings opportunities. This will also assist with supporting your goals for the following year. Your accountant can run your relevant reports & help walk you through them of provided additional analysis.
10. Start Preparing for Next Year
This is the perfect time to start your new year on a good financial note. Talk to your accountant about simplifying your accounting with systems and processes.