2022 Year-End Tax Planning Strategies for Businesses
Fall is around the corner and it’s the best time to get organized and assess what cost-saving actions you can take for your business before the end of the year.
Don’t be like other business owners who wait until spring to start thinking about their taxes - this could cost thousands of dollars.
We’re here to make sure your tax filing experience is a breeze and ensure your hard-earned money is kept in your pocket. If you have a good sense of your cash flow, you may want to take advantage of any additional tax-deductible expenses before year-end. Let us share with you how you can reduce your tax payable.
For more tax tips for small businesses or to help with any accounting or tax needs, email us at info@eocpa.ca or book a free consultation with Liz here.
1. Capital Purchases & Defer the Sale of Capital Assets Before Year-End
If you have extra cash, consider purchasing capital assets for your business. Tools and/or equipment that cost more than $500 will be deducted over a period of years using Capital Cost Allowance (CCA). This will help you reduce your taxable income over the assets’ useful life.
What is CCA? If you purchased a fixed asset with a long-lasting life in your business, you can’t deduct the entire cost as an expense in one taxation year. Since fixed assets depreciate over time, they are considered “capital goods” and their cost will be deducted over a period of time using the CCA rate.
If you need to buy a major capital asset like machinery, building, or equipment to use in your business, consider buying it before the end of your fiscal year to claim tax depreciation, or CCA to reduce your income on your tax return.
On the other hand, if you have depreciable assets to sell, it may be better to wait until the next fiscal year. The delay lets you claim another year of CCA in the current tax year. We can help you assess and strategize on which option is the best for you. Email us at info@eocpa.ca or book a meeting with Liz here.
2. Donations
Corporations can claim eligible charitable contributions to a limit of 75% of its net income. The donation must be within the corporation’s fiscal year to be claimed as an expense but you can carry forward unclaimed donations for up to five years.
If you sponsor local sports teams, and other branded charitable donations, these can be claimed as advertising if the materials include your branding and logo, which could potentially increase awareness of your business.
Note: the tax law is slightly different for sole proprietors. Contact us for more information.
3. Bonuses/Gifts/Staff Events
CRA allows employers to give gifts to employees and they are non-taxable as long as they are given on a special occasion like a holiday or a birthday, or another similar occasion. Generally, if the gifts given to employees are not cash they will not be taxable.
Under the current rules, non-cash gifts will not be taxable so long as the total fair market value of the gift(s), in any given year, is <$500. If you give your employees gifts that are over and above this $500 maximum, they must be included as a taxable benefit on your employees' T4. The one difference between cash gifts and non-cash gifts over $500 is that there are no EI premiums on non-cash gifts.
For example, if an employer gives a bottle of wine to their employee on their birthday, the employee does not have to pay any tax on that item. However, if the employee had received a gift certificate over $500, that gift certificate needs to be reported on the employee’s income slip for the year as a taxable benefit and the employee has to pay taxes on it. For the employer, that near-cash gift item can be written off as a business expense.
If you are planning to have staff events with your team there are two important considerations.
Invite everyone to qualify for the tax write off.
The cost per employee must be <$100, excluding transportation or overnight accommodations. If the cost is >$100 per person, the employee will incur a taxable benefit equal to the total cost per person, not just the cost that exceeds $100.
4. Review & Follow-Up Account Receivables (AR) and Assess Bad Debt
Your Accounts Receivable Aging Report will let you know which clients have an outstanding balance. Document your follow-up and determine if you want to write off any uncollectible AR as bad debt for the year. Generally, invoices outstanding for over a year can qualify as bad debt; make sure you document any outreach to ensure payment.
5. Review your Mileage Log and Vehicle Expenses
If you use your personal vehicle for business-related activities, you can deduct a portion of vehicle use expenses such as fuel and repairs/maintenance costs. Make sure you’re utilizing an app that tracks your mileage or regularly updating your mileage log—a record of your business travel for the entire year. Without this record, the CRA will disallow your vehicle expenses as a tax deduction.
6. Organize your receipts
Make sure your business transactions are separate from your personal transactions. Have separate business (checking and saving) banking accounts as well as credit cards so you don’t mix them. Spend time reviewing every month uploading a digital copy of each receipt into QBO for our team to review. This will ensure we have supporting documentation for CRA.
7. Consider making additional tax-deductible expenses
Expenses such as purchasing marketing materials like brochures or business cards and renewing your membership in your trade association will qualify for a tax write off.
Also your accounting, bookkeeping, tax preparation and finances are tax deductible too!
If you’ve been thinking about hiring professional help, why not take advantage of this deduction? We offer a free consultation to explain how to take advantage of all the tax-saving opportunities available to you.
Book a meeting with Liz here or email us at info@eocpa.ca.
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We hope you‘ve found this guide helpful in understanding your tax position today and getting you ready for the next tax season. It is our aim to get you ahead of the game as some of these ideas will require immediate action, while others require your year-round attention.
For more tax tips for small businesses or to help with any accounting or tax needs, email us at info@eocpa.ca or book a meeting with Liz here.
Talk soon,
Team EO CPA
Disclaimer: This article is for informational purposes and not intended as accounting or tax advice. Please contact us for an engagement to best assess your specific situation.
