Sole proprietors, including store owners, tend to do all the work themselves. However, following the right steps can help you reduce your tax burden. Paying tax on time and filing your reports correctly can help you save money on taxes. Below are some tips to help you file your taxes for a sole proprietorship in Canada successfully.
- Getting benefits of non-capital
Consider using this method to decrease your taxes if your business has non-capital losses, which means your expenses exceed your revenues. These losses can be used to offset other forms of personal income. Keep in mind that these losses can be carried back 3 years and forward for a total of 20 years.
- Divide your income by paying wages to your family members
Consider paying your family members for services they provide in connection with your company. By income splitting, you can reduce your overall tax liability. However, keep in mind that the wages you pay must be appropriate in relation to the services they perform.
- Claim applicable business costs
There are many business expenses that you may overlook while filing your taxes. Internet and phone costs, as well as automobile expenses, are among them. If you need to drive to conduct business, for instance, you can deduct car expenses including gas, repairs, and maintenance, as well as interest, insurance, and parking.
- Consider incorporating your company
Because of the numerous tax benefits that corporations provide, it is natural for single proprietors to eventually incorporate their businesses. The most important is the small business deduction, which decreases the tax rate on the first $500,000 of firm income to a low of 15.5 percent.
The following are some tips to help you file your taxes for a sole proprietorship in Canada successfully. These should be considered as general guidelines and not legal advice. Please speak with an accountant or tax professional before filing any documents, if possible.