Did you get an unexpected surprise when you went to file your small business taxes this year? Did you not pay enough in estimated taxes during the year and now don’t have the cash to cover what you owe by the deadline? Here are five things you can do today to try and reduce your small business tax bill.
Contribute to a Retirement Account
Just like a retirement plan at a regular job, contributing to a small business retirement account can help lower your tax bill. After the calendar year has ended and before your tax filing deadline, you have two options:
One is to contribute to a RRSP. Both provide a deduction against your taxable income to reduce income taxes. With a RRSP, you are allowed to contribute up to 18% to a maximum of $27,230 in 2020 if your contribution room allows.
Check for Missed Expenses
It’s important to go back through your records and make sure you didn’t miss any business expenses. This might include things like travel expenses that got mixed in with your personal vacation budget. If an expense was an ordinary business expense and necessary to conduct your business, this is a cost that can generally be deducted.
Don’t skip expenses because you’re afraid of an audit, either. If you do get audited the CRA will simply ask for your receipts and documentation showing that the expense was for your business. As long as you kept the appropriate records during the year, you should have nothing to worry about.
Request a Payment Plan
If you are out of options to reduce your tax bill but still can’t pay it, request a payment plan. The CRA offers installment agreements to let you pay off your tax bill at a relatively low-interest rate. You will have to pay interest and late payment penalties, but they’re not as high as they would be if you simply didn’t pay your taxes without making payment arrangements. An added benefit is that there is no credit application or credit reporting.
Before you request an installment agreement, you may want to double check that you can’t get a cheaper loan or take advantage of a credit card promotional rate. These will affect your credit, but the cost could be lower.
Plan for Next Year
The bottom line is that you can’t do much about your taxes during filing season, because your tax return reports what happens last year. If your tax bill for this April is too high, you need to start planning now for steps you can take this year to avoid a high bill next April. Contact one of our financial advisors now to learn more about what you can do to reduce your small business tax bill.
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.