Congrats! You filed your 2021 taxes on time... It was a struggle and you worried that you were missing deductions and/or that your taxes due would be too much for you to pay on time. While things are fresh in your memory - let's face it who remembers what they had for breakfast yesterday... this is a good time to consider what you should do BETTER to prepare for the next tax season.
Here are some of our top five tips:
1. Regular Bookkeeping for your business. Avoid scrambling last minute! Doing your books after the fact is a sure way to miss deductions and pay more taxes. If you are the owner of a Sole Proprietorship you will directly be affected by the net taxes due. If you are the sole shareholder in a Corporation you are getting in the way of tax planning. With a corporation, there are opportunities for tax planning that are not available with Sole Props. BUT if you do not have your bookkeeping done properly your Accountant will not be able to access these opportunities on your behalf.
2. Paying Installments: If you paid more than $3K for 2021 taxes you should consider paying quarterly installments that are estimated amounts - based on your last tax filing. If you rather have:
small portions be paid regularly and
no or little interest accrued due to late installment payments
This is not a solution for you if your business is not going to make as much money as it did last year, business income is a tad unpredictable, or you are working on getting your cash flow management balanced.
3. Contribute to your RRSP: This works well instead of #2. or in tandem with #2. By contributing to your RRSP during the year you reduce your stress during tax season and depending on your balances due you could be able to eliminate your taxes payable.
4. Track your business mileage when you use a personal car for business: This option is applicable to both; owners of sole proprietorships and shareholders of Corporations. Monitoring and tracking your business mileage does not have to be on an app. A simple twelve-month log will do. This log can be used in future years and will provide you with peace of mind that you are applying the correct percentage of auto-related expenses to your tax return. Who doesn't want to claim their vehicle expenses with confidence?
5. Track your medical expenses: Track those medical expenses that are paid out of pocket during the year will ensure you don't miss any non-refundable credits at tax time. Premiums to private health care are also tax-deductible and if you are in a marriage or common-law setting and you file together this deduction will be applied to the tax filer with the lowest income.
💡6. Our BONUS TIP
Incorporate your sole proprietor business. This may not be an option for everyone and it certainly requires a more in-depth analysis and understanding of your obligations. But if you are in a position where you can defer your taxable income to future years then you should consider incorporating your business. There are different tax strategies available to you personally as a shareholder. Thinking about incorporating? You should read this blog - What to do when you are transitioning from a Sole Proprietorship to a Corporation.
Do you have any other tips or questions to ask? Feel free to do so in the comments section. Or reach us at Contact Form