Congratulations! You Filed your last Year's personal taxes (or not) and you are wondering how to make this process easier.
The process may have felt like a scramble, you might worry about missing deductions and feeling overwhelmed by a large tax bill.
Here are our top five tips to help you get ahead:
1. Stay on Top of Regular Bookkeeping for Your Business
Avoid the last-minute rush! Doing your books only after the fact (end of the year) is a recipe for missing deductions and paying more taxes. If you own a sole proprietorship, your tax bill is directly impacted by your business's profit or loss. For corporation owners, proper bookkeeping is essential for effective tax planning. Without accurate records, your accountant can’t unlock valuable tax strategies for you.
2. Consider Paying Installments
If your previous year's taxes exceeded $3,000, it is wise to start paying quarterly installments based on last year’s filing. This helps you spread out payments and avoid interest penalties for late installments. However, if your business income is unpredictable or significantly lower than last year, this may not be the way to go. Remember It’s all about balancing your cash flow.
3. Contribute to Your RRSP
RRSP contributions can be a smart alternative—or a complementary strategy—to paying installments. By making contributions throughout the year, you can reduce tax-season stress and potentially wipe out your taxes payable entirely.
4. Track Your Business Mileage
Whether you're a sole proprietor or a corporation shareholder, tracking your business mileage is crucial when using a personal vehicle for work. You don’t need an app—a simple 12-month log will do. This log will give you peace of mind that you're claiming the correct percentage of auto-related expenses and maximizing your vehicle deductions.
5. Keep Track of Medical Expenses
Log the medical expenses you’ve paid out-of-pocket throughout the year. These expenses can qualify for non-refundable tax credits -reducing your taxes but not giving you a refund. If you’re paying premiums for private health insurance, these are also deductible. In a marriage or common-law relationship, this deduction is usually applied to the partner with the lowest income, so make sure you file accordingly.
💡 BONUS TIP: Incorporate Your Business Incorporating your sole proprietorship might not for everyone, but if you’re in a position to defer taxable income to future years, it’s worth considering. Incorporation opens up new tax strategies for you as a shareholder. Curious about this transition?
Check out our blog, Ready to incorporate Making the switch: From Sole Proprietorship to 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
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