Tax Tips for Individuals, Families, and Small Businesses
Since paying taxes is inevitable, it is best to have an understanding of what you are supposed to be paying. And that is essentially the first tax tip. While it is beneficial—and much less stressful—to use an accounting firm to handle your filing, it’s useful to understand what they do so you can help them do their job that much better.
At Joseph Shoichet Consulting (JSC), we believe that education is one of the best tools to improve the results we deliver to our clients. By improving our clients’ understanding of what we do and how we do it, they can become an active and informed collaborator in the process, thus ensuring better results. We’re able to draw on 20 years of experience to give our clients the best tax advice possible, enhancing their financial stability and success.
Tips for Individuals and Families
The tax code for families in Canada includes many benefits. Your accounting firm should be aware of all of them. But as previously stated, it’s still important for you to know these facts independently of whoever is providing tax filing help. Here is a list of a few tips individuals and families can use to take advantage of some overlooked tax benefits:
- First-time home buyers can claim a $5,000 federal non-refundable tax credit in the year they purchase a qualifying home.
- People who use monthly or weekly transit passes or qualifying electronic payment cards may be entitled to a federal non-refundable tax credit worth 15% of what they spent on transit. Certain conditions apply; ask your accountant or visit the CRA web site for details.
- Tax credits for healthcare expenses are often overlooked. People do not understand how the credit is calculated or what expenses are eligible, so they often don’t bother looking at them. Although you can only claim a credit for total medical expenses paid out of pocket after deducting the lesser of three percent of net income, or $2,171 (2014), you can combine the medical expenses paid for yourself, your spouse, and your minor children; claimed in the hands of the lower income spouse.
- You also do not need to use a calendar year when calculating the credit. You can use any 12-month period ending in the tax year. This can often be advantageous if a major expense overlaps tax years.
- Many people do not realise that the premiums paid by a taxpayer for private or employer-sponsored supplemental healthcare plans are often eligible as a healthcare expense.
- Other eligible expenses that can be overlooked are dental, prescription eyewear, chiropractic, psychotherapy, birth-related medical costs (i.e. circumcision, in vitro).
- One of the major reasons people fail to claim medical expenses is that they find it burdensome to keep records of what they spent. However, if you have a supplemental healthcare plan, you can ask your insurer for your annual claims summary, which provides a convenient and complete record of your out-of-pocket cost for the year.
- Added in 2014 is the Family Tax Cut Credit: This provides spouses with uneven incomes and minor children a means of reducing their overall tax burden though an income-splitting formula that can provide a maximum tax savings of up to $2,000, depending on the relative income of the spouses.
- Apply for a SIN number for your child: This will allow you to take advantage of benefits like RESPs, the Canada Learning Bond, and the Canada Education Savings Grant
- Claim all possible federal and provincial deductions. This includes the Children’s Fitness Credit, which has been increased to $1,000 per child for 2014; and Children’s Arts Tax Credit, which is a separate $500 per child.
Tips for Small Businesses
Small businesses have different factors that need to be taken into account when considering income tax services. Many benefits are available depending on how the business is structured. That leads us right into our series of tax tips for small businesses:
Find the Right Structure
One of the most important decisions for a new business is what type of structure should be used. Oftentimes, aspiring new business owners, based solely on popular opinion and very little consideration for their specific situation, assume that incorporating is the best way to go. While incorporation can provide a number of benefits to a business and often is the best choice, there are two potential drawbacks to incorporating for new businesses that are often overlooked.
First, incorporating increases the complexity and operating costs of running a business. Corporations, unlike sole proprietorships or partnerships, are considered independent entities from their owners and are required to file articles of incorporation, annual information returns on officers and directors, keep minutes of meetings and resolutions, and file annual corporate tax returns.
The second drawback is that a corporate structure prevents the owner(s) from being able to use any business losses. This can be very common in the first few years of a new business as a deduction against their other income. The point here is that the structure chosen can significantly impact a business’ tax costs and available planning options. As such, costs should be carefully assessed based on the characteristics and requirements of that specific business.
Pay Close Attention to Cash Flow
This is crucial because many otherwise profitable businesses struggle and sometimes even fail due to problems stemming from poor cash flow management. Making sure you get paid is critical via managing accounts receivable. Unless written off as bad debt, both income and sales taxes must still be paid on outstanding receivables. There is no substitute for good software to assist you in making sure you are getting paid.
Know Your Deductions
Many expenses can be claimed. Even when employing the services of an accounting firm, it’s still up to you as a business owner to ensure all your expenses are available and in order. Missing out on deductions due to poor record keeping is extremely common. Collecting and recording expenses can be time consuming. But here again, good software and good habits can save you hundreds or even thousands of dollars in taxes.
As a self-employed individual, you should always be asking yourself whether the given expense is business-related. If the answer is yes, you should always pay using your business debit or credit card. This, when coupled with accounting software that automatically imports and categorises your bank and credit card account transactions, can make a burdensome task much easier.
Keep Business and Personal Expenses Separate
Using the same account for both business and personal expenses can lead to headaches when it comes time to differentiate between them. By keeping separate accounts for business and personal expenses, you can make filing taxes a much simpler process.
JSC has 20 years of experience in the industry. We are aware and up-to-date with all of the potential deductions and know how to save you money through meticulous attention to detail when it comes to your taxes. Whether for family or for small businesses, our expertise has led us to become a trusted accounting firm in Toronto; able to offer our clients a high level of accounting solutions. Contact us today to see what deductions you could benefit from.