When it comes to paying taxes, you should be aware of both the amount that is due and also the deductions that you can claim. There are hundreds of deductions and credits available to minimize your business tax burden and maximize your returns. Every year Canadian businesses pay millions of dollars in taxes but often miss out on claiming some tax deductions. Here’s a list of some commonly overlooked tax deductions by businesses.
Home-Based Business Tax Deductions
Home business tax deductions are often overlooked because of lack of knowledge about expenses on which this deduction can be claimed. When you operate a home-based business, there are several business related expenses to claim deductions on. This includes mortgage interest, office expenses, automobile expenses, insurance for business and more. So, if you are a home-based business, consult a tax expert to help you claim these deductions.
Scientific Research and Development Tax Credit
Scientific research and development are not limited to large corporations. There are several small businesses and partnerships that are into it. So, whether you are a huge corporation, sole proprietorship or a partnership business having scientific research and development, you are eligible for certain tax credit. While the tax returns vary for different business structures, you can earn substantial tax refunds for qualified expenditures on scientific research and development.
You come across terms like reserves, contingent account and sinking fund in your financial statements. A substantial amount can be deducted from these accounts as long as the specified amount is reasonable as per regulations. Although the amount placed in a reserve must be incorporated into your income the following year, you can create a new reserve during that year. Take the guidance of a tax and accounting expert to understand how you can benefit from this.
Investment Tax Credits
Depending on the type of your business structure, investment tax credits help reduce the amount of tax to be paid. An investment tax credit allows you to deduct a certain amount of the cost of acquiring property or certain expenditures. Although there are certain eligibility criteria and other conditions, if you qualify, your tax burden will reduce substantially.
Income Splitting by Hiring your Spouse or Child
As a business owner, you must be aware of the term income splitting. It is a technique designed to save taxes by shifting income between taxpayers. When you hire an employee, their wages become a business expense. Hence, by hiring your spouse or child, you can avail the benefit of income splitting. By hiring them, you will be able to shift your net income into a lower tax bracket and get a good amount of deduction.
These are some of the most overlooked tax deductions that business owners fail to claim. To make the most of the tax deductions, you need to know and understand them thoroughly. Outsourcing this task to taxation experts will help you make the most of these tax deductions.