Skip to main content

Growth Five year-end tax tips for small business owners

To help Canadian small business owners cope during tax season, BMO has compiled a list of simple year-end tips and strategies that can pay dividends.

"While the year started off with a few economic storm clouds on the horizon, many small business owners are now expressing a growing optimism and an increased level of confidence about their ability to finish out 2010 strongly," says Cathy Pin, Vice President Commercial Banking, BMO Bank of Montreal.

For small business owners in Canada (most commonly a sole proprietorship or partnership), there are a number of year-end strategies that can be applied to reduce the amount of income tax payable, including:

Story continues below advertisement

1. Do a 'financial check-up': A business banking adviser, accountant, and investment adviser can help owners make sure they have a clear understanding of their current financial situation. These professionals can also help develop or adjust existing plans based on new needs or changing circumstances.

2. Defer income: Depending on a number of factors (e.g. future tax rates, projected profit or loss for 2010, cash flow), small business owners may be able to reduce the current taxes they will be paying by deferring some of the income they expect to receive in December, instead into January 2011.

3. Gather business receipts and increase expenses: Maximize income tax deductions by ensuring all allowable receipts for business-related expenses (e.g. gas, stamps, customer lunches, coffee for the office) are kept and accounted for. Over the course of a year, those receipts for the little things can add up. Business owners should consult the guidelines available from the Canada Revenue Agency, or speak to their professional tax adviser about eligible business expenses.

If it makes sense for their current business situation, businesses can also increase some expenditures now on things they plan to need early in 2011, in order to maximize 2010 deductions. For example, small business owners can consider accelerating the purchase of new equipment or other depreciable assets before the end of the year to potentially benefit from a claim for tax depreciation in the current year.

4. Consider inventory write-offs: A drop in the value of inventory may also provide an opportunity for an additional income tax deduction for the current year. It is important to speak to a banking adviser and your accountant about the tax rules that apply to your particular situation.

5. Set-up a new RRSP or make that maximum annual RRSP contribution: For unincorporated small business owners, income earned by the business becomes personal income when filing taxes using the T1 form. However, many small business owners fail to take full advantage of the best income tax deduction available to Canadians – the Registered Retirement Savings Plan (RRSP).

RRSP contributions are deducted from annual income, thereby lowering income tax payable at the individual's marginal tax rate. Now is a great time to set-up a new RRSP or make a contribution to an existing plan for 2010 to benefit from the tax-deferred growth right away. The process is simple, quick and can be done at any bank branch.

Story continues below advertisement

Marketwire

Report an error
Tickers mentioned in this story
Unchecking box will stop auto data updates
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

Cannabis pro newsletter