While filing standard annual income taxes is a fairly straightforward process for most people, for startup business owners, it's a whole different ballgame. There are many additional factors to consider, rules to know, and details to keep track of.
This article covers 6 tips to help make business taxes easier for your Canadian startup to navigate.
When you are first getting your business off the ground, there are startup expenses you incur that are necessary for your business to operate. Many reasonable and legitimate expenses can be claimed as business startup tax deductions. Some of these items may include:
One of the biggest tax tips we can provide to entrepreneurs is to always be organized. From every business expense to income earned, keep receipts and detailed records. The importance of keeping good records cannot be overstated enough for a few reasons:
As a small business startup, tax credits can go a long way. Become familiar with all tax credits you are eligible for which may include:
As a startup business, you can withdraw money from your company either as a dividend or salary. Paying yourself a healthy salary provides an opportunity to maximize your RRSP, but you may also want to take out part of your pay as a dividend to take advantage of a lower tax rate.
Knowing how to balance the two can maximize your earnings, but you must be aware that every startup business owner’s circumstances are different. What may be a great decision for one person may not be as smart for another.
Many startup business owners choose to pay family members a salary, as any salary paid out will count as a business deduction. However, the salary must be reasonable in relation to the position your family holds at your company. For example, a typical entry-level position should not be earning a salary that is well over the average in your region.
In the past you may have been an employee and taxes were deducted from every pay. This hopefully resulted in no large sum of taxes due at the end of the year. Now as a startup business owner, this doesn't happen. It is your job to determine what fits best within your startup budget. You may want to consider paying income taxes every month to avoid one large payment. This can be set up with the CRA and can be easier to manage throughout the year.
From year to year, there can be changes to tax law and tax credits available to startups. To keep up-to-date, we recommend choosing a CPA firm that understands startups and can advise you on what is best for your business.
In addition to acquiring the services of a tax professional, having a startup mentor is a great way to learn from someone who has been where you are in your journey, or has the expertise to advise you to make smart choices. A startup incubator has experienced mentors, fantastic programs, knowledge, and opportunities to help you plan for startup taxes and aid in your company’s overall growth and success.