When the world was considered “normal”, we would have officially been late to filing our taxes. But as COVID-19 continues to turn the world upside down with no hard stop end-date to the madness, Canadians are now filing taxes at a much later date—now that the deadline has been extended to June 1st, 2020.
Whether you choose to file early or last minute, there are key tax loopholes that all small business owners should consider to save money during tax time.
The following are three key tax loopholes that not every small business owner might know:
1. Defer Income to Reduce Tax This Year
Tax rates are always changing. As a small business owner, if you don’t already have pre-existing knowledge of accounting, taxes, and/or finances in general, it’s important to:
- Get educated as soon as possible, or
- Hire a qualified accountant who can guide you in the right direction.
Deferring income either at the beginning of the year (January or February) or at the end of the previous year (November or December) is one of the many tax loopholes that small business owners can take advantage of in order to reduce their business income for the year. This, in turn, reduces the tax they have to pay as well.
Of course, this relies on a number of factors such as projected income or losses and future tax rates. By reducing the current taxes you pay this year, you are essentially deferring some of the income you expect to receive in the months of December 2019 to January 2020.
PRO TIP: Track your total income to get a clear idea of how much money you can defer for tax purposes. With accounting software, you can easily navigate to view and export key documents such as the Profit & Loss Statement, which is synonymous with the income statement. Understanding your business’s numbers can help you make a decision as to how much income you can defer this year.
2. Consider Saving Major Business Purchases For Year-End
Equipment and operation upgrades are essential to running and growing your business. But consider taking advantage of another tax loophole: saving major business purchases at the end of the year.
Small business owners tend to purchase items that depreciate in value. For example, if you’re thinking about buying new office equipment, a new computer, or upgrading your current set of office furniture, consider making these major purchases at year-end. By doing so, you can actually claim a full year’s worth of depreciation sooner—even though you’ve really only had these items for a few weeks or a few days.
PRO TIP: When making small or large business purchases, it’s important to track these expenses to take advantage of eligible tax deductions. New office equipment is an expense category that’s available in Kashoo’s Smart Inbox. Once your business accounts and credit cards are connected to Kashoo, any transactions—including your upcoming major purchases—will be imported into Kashoo for you to categorize and reconcile.
3. Don’t Neglect Home Office Deductions
If you don’t already know, home office deductions is a tax loophole that can form a large part of your overall eligible small business tax deductions each year. Although tracking these important deductions should be part of a habit that you conduct throughout the year, it’s equally important to bring this up during tax season.
Rent, mortgage, property taxes, utilities, telephone, and home insurance are components of housing costs that you could use to claim a portion of taxes. While you cannot claim 100 percent of these expenses, claiming a portion of these—year-after-year—can help you gain back heaps of dollars that should have been yours in the first place.
PRO TIP: Reduce the amount of tax you owe this year by paying attention to home office deductions. Accounting software can make the tracking process easier throughout the year using drag & drop features for receipts and machine learning to remember your selections and to automate this process for you in the future.
Implement These Tax Loopholes Into Your Tax Regime This Year
So what are you waiting for? Stop neglecting these three key tax loopholes this year (and every year after that) to fully take advantage of your eligible small business tax breaks. You can also try Kashoo’s free 14-day trial today to see how our unique features, like the Smart Inbox, can make tax season even easier next year.