Five Tips to Help You Get The Most Out of Your Tax Returns

Filing your taxes can be a daunting task. There are so many exemptions and deductions that it can take time to know which ones you should take advantage of to get the most out of your tax return. With the right strategies and knowledge, you can make sure that your return is maximized to its fullest potential. To help you out, we at ACT Services have written down five tips to help you maximize your tax returns.

Tip #1: Incorporate your business

Small business owners looking to minimize what they pay in taxes might want to consider incorporating their business. Depending on what your business does and in which province you operate, incorporating the business can lead to tax deferrals. When you incorporate your business, you can take advantage of certain tax benefits that are not available to unincorporated businesses, such as income tax splitting and capital gains exemptions when you sell the business.

One big advantage of incorporating your business is the lower corporate tax rates.

For Canadian-controlled private corporations claiming the small business deduction, the net tax rate is 9%. By comparison, if you register the company as a sole proprietorship, you pay the personal income tax rate on all profits.

In 2022, personal income will be taxed as follows:

• 15% on the first $50,197 of taxable income, plus
• 20.5% on the next $50,195 of taxable income (on the portion of taxable income over 50,197 up to $100,392), plus
• 26% on the next $55,233 of taxable income (on the portion of taxable income over $100,392 up to $155,625), plus
• 29% on the next $66,083 of taxable income (on the portion of taxable income over 155,625 up to $221,708), plus
• 33% of taxable income over $221,708

Another big advantage of incorporating a small business is limited liability. When a business is incorporated, it is considered to be a separate entity from the owner or shareholders.

Please note the tax rate is only at the Federal level. The provincial rate varies.

Tip #2: Claim non-capital losses

If your business has a non-capital loss (your expenses exceed business income) in any year, figure out which year you can use this loss to decrease your income tax bill.

Non-capital losses can be used to offset income, and the loss can be carried back three years or carried forward up to twenty years. With the help of a tax professional who has experience working with small business owners, you can decide if it makes sense to use the non-capital loss in the current tax year, carry the non-capital loss back to recover income tax you’ve already paid, or carry it forward to offset a larger tax bill.

Tip #3: Take advantage of business-use-of-home expenses

The majority of Canadian entrepreneurs are small business owners, many of whom operate their businesses out of their homes. There are tax advantages to having a workspace in your home. If the workspace in your home is the principal place of business, or you use it on a regular and ongoing basis to meet your customers, then you can claim a percentage of your home expenses. Normally the percentage is determined by the size of your office in relation to the total size of the home. If your office takes up 10% of the home’s total footprint, the business use home percentage would be 10%.

You can deduct a portion of all the home expenses that relate directly to operating your business, including:

• Utilities
• Cleaning materials
• House insurance
• Property taxes
• Mortgage interest
• Capital cost allowance

Tip #4: Manage your RRSP and TFSA contributions

Registered Retirement Savings Plans (RRSP) and Tax-Free Savings Accounts (TFSA) are excellent ways for Canadian entrepreneurs to maximize their tax deductions.

How much you should contribute depends on how much your income fluctuates each year.

Contributions to an RRSP are tax-deductible, so you receive immediate tax relief and tax-sheltered growth. To maximize the benefits of the RRSP, you should contribute to it when you’re in a higher tax bracket. Since any unused contributions from previous years can be carried forward, it might be better to hold off on making RRSP contributions for a year where you expect to make a high income.

With the TFSA, you won’t receive up-front tax relief, but your money accumulates tax-free, including capital appreciation, bonds, and other interest-bearing financial products.

If you’ve maxed out your RRSP, you can put money or investments into a TFSA. Find out when it’s beneficial to use an RRSP or TFSA, depending on your income level.

Tip #5: Collect receipts for business-related activities

If you want to take advantage of all the tax deductions available to you and reduce your tax burden, you need to collect receipts for all business-related activities.

We know you’re busy. Keeping track of your receipts may not be at the top of your list, but all of your business expenses add up, no matter how small. Business expenses include everything from online advertising and promotional materials like business cards to interest you pay on buying property for your business. Why keep the original receipts? The Canada Revenue Agency doesn’t accept credit card statements as proof of business expenses. If the CRA asks you to verify your claims, you need to provide the original receipts. Hang onto them for at least six years after your last Notice of Assessment, which is as far back as the CRA will ask for them in the event of an audit. You can keep physical receipts or digital copies.

If you are looking for experienced accountants in Braeside, Pembroke, Toronto, Ottawa, ON, reach out to us at ACT Services. With over twenty-five years of experience in accounting, taxation, and advisory, we believe in a personal yet professional approach and provide services to businesses, corporations, and individuals.

We offer services like accounting, tax planning, management consulting, business advisory, financial statements, book-keeping, personal tax, payroll services, and more to clients across Toronto, Brampton, Mississauga, Vaughan, Markham, Ottawa, Kemptville, Carleton Place, Pembroke, Petawawa, Eganville, Arnprior, Shawville, Pakenham, Mississippi Mills, Braeside, Renfrew, Ontario, and the surrounding areas.

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