Tax Tips for 2014
It's tax season and contractors across Canada are scrambling to meet deadlines, find receipts and making RRSP contributions before it's too late import. It's important to understand that it's not how much money you make, it's how much you can save that really counts! The CRA (Canada Revenue Agency) does provide many incentives for small business and it's up to you to take advantage of their offer.
It pays to be organized, so track those expenses. An easy way to start is with the Ten Minute Tuesday. Take 10 minutes every Tuesday and shove those receipts in specific folders. Folders labeled such as meals, tools, vehicle expenses, building materials or sub contractors, to name a few, can really help speed up your processing time if you enter this data yourself to give to the accountant. You can pay your accountant to enter this data for you but at the very least, it will save you some money by properly organizing your receipts.
How many times has it happened to you where you forget to ask for a receipt? If you do, you've just thrown away another 30%! There are two ways to avoid this from happening. One, memory training (which could be a write off!!) or two, have a dedicated business credit card. You'll get a monthly statement from your credit card provider and this will support all your business transactions.
When you are ready to trim your tax bill, look into the following tax deductions, incentives and credits, they may provide an easy way to shrink your tax burden.
Any work related tools that cost under $500 are 100% deductible! Tool and office equipment (e.g. computer) that retails for over $500 can be deducted at 20% a year over a five-year period.
Your Home Office
Most self-employed people know this one off by heart but your home office is also a deduction. So not only can you write off a portion of your mortgage, but also utilities, communications, and even housekeeping!
A classic move to leverage your money is to hold off on any capital expenditures until the end of the calendar year so you can start claiming your partial depreciation sooner.
Since you are in a physically demanding line of work, you have a health plan and your premiums are deductible. Expenses outside your plan are also deductible.
Available Government Credits
There are several government (federal and provincial) credits available where you can save a few thousand dollars. The Hiring Credit for Small business can save you up to $1,000 on the employer's share of the employment insurance payments for new employees. Another popular one is the Apprenticeship Job Creation Tax Credit, which provides the employer's equivalent to 10% of an apprentice's wages (up to $2,000) per apprentice. There are several of these tax advantages you can take advantage of, but talk to your accountant to make sure you can qualify.
A RRSP contribution is a great way to minimize your personal tax burden for the year. Online tools can show you how your contribution would lower your taxes. Play around to find a sweet spot that reduces your taxes significantly, but doesn't hurt your cash flow. If you have had a lower income year, it's best to hold off on those RRSP contributions especially if you anticipate a rebound the following year. Remember, March 3 is your contribution deadline date.
While there are credits and incentives, there are also penalties, so file on time. Government penalties can range anywhere from 5 to 20% of your balance owing. And if you do owe, consider a bank loan if monies are not readily available. Interest on a business related loan is deductible but interest and penalties to CRA are not.
There are many golden nuggets tucked away in mountains of information that is readily available but hard to find. Finding yourself a good accountant is vital but you can also lean on fellow contractors for information as well. Another valuable source may be your local Home Hardware Building Centre Owner, who could share their experiences with you during this time of year.
Always remember that the money you save is just as important as the money you earn!