If you’re like most sole proprietors, December 31st is your fiscal year end and you’re wondering if there is anything you can do to reduce your taxable income before the end of the year. Here are a few simple ways to maximize your income tax deductions.
Receipts. The first rule for maximizing your deductions is to have all of your business-related receipts. The “little” things can really add up so make sure you hold on to those receipts for the parking fee on the way to meet a client, the stamps you bought, the coffee you had during your afternoon meeting. Over the course of a year, these expenses make a difference.
Capital assets. Buy (and sell) your assets at the right time; buy new assets before December 31 and dispose of old assets after the current year. Timing is important since the deduction for capital cost allowance in the year of purchase is reduced by 50%. Note: in order to claim the deduction, the item you purchase must be available for use by December 31.
Strategically report certain deductions. You don’t have to deduct contributions to your Registered Retirement Savings Plan, non-capital losses and capital cost allowance in the year you incur them. These are not mandatory tax deductions so you can use as much or as little of these as you want during a particular tax year. Any unused portion can be carried-forward to help offset a larger income tax bill in the future. Instead of taking these deductions immediately, save them for years when you have high income.
While not all of these tax strategies will work for every small business, hopefully this has you thinking about tax planning. For a comprehensive list of business tax deductions, get in touch and ask for our sole proprietor income tax checklist.