If youre a small business owner, you know that taxes can be a significant expense. If you miss out on tax deductions and credits, you could be needlessly sending hundreds, if not thousands, of dollars to the government that could easily stay in your own pocket. In many cases, it’s the simple and most commonly used tax maneuvers that end up yielding the greatest savings. Here are three such strategies you can implement around tax time to help ensure the money your business earns ends up staying in-house.
Deduct Medical Expenses Through a Private Health Services Plan
If you have even a modest amount of medical expenses, a significant percentage of that cost can be regained through the use of a private health services plan. Business owners are able to deduct payments made into a PHSP on behalf of themselves, their employees, and their dependants. For example, say a business owner makes payments into a PHSP offered by one of the many plan providers. In most cases, the provider charges an administrative fee for handling claims. At tax time, the fee plus the amount of medical expenses incurred, up to 3% of net income, is deductible resulting in a sizable refund for those costs. These PHSP premiums can be claimed on line 9270 of Form T2125.
Deducting Legal Fees
If you hire a professional to advise you on business matters dealing with contracts, taxes, lawsuits, or other legal matters, the costs associated with those individuals are tax deductible. The definition of what qualifies as a legal fee can be wide ranging. Lawyers fees related to the collection of unpaid accounts, guidance on salary and benefits, the review and preparation of taxes, and dealing with the Canada Revenue Agency are all tax deductible. Other examples include legal fees associated with employment insurance, pension plan contributions, and drafting legal documents. Legal costs can be claimed on line 8860 of Form T2125.
Avoid Late Filing Penalties and Interest Charges
One of the easiest ways to save on your tax bill is to simply file your returns on time to avoid unnecessary late fees and interest penalties. Tax returns need to be filed and payments submitted by April 30. The penalties for missing this date are stiff. This includes a 5% penalty on the amount owed immediately and an additional 1% penalty per month, up to 12 months, if the balance remains outstanding. If youre a repeat late offender, the penalties increase to 10% of the total amount owed and an additional 2% per month up to 20 months. If you think youll be late on filing your taxes, its best to contact the CRA to work out a solution. It has been known to waive or cancel penalties if you make a good faith effort to proactively contact the agency. The CRA allows companies to deduct a wide variety of business-related costs and expenses. Your business is likely already incurring a number of expenses that can be written off at tax time. Maximizing these simple business deductions can add hundreds of dollars or more to your company’s bottom line.