As a small business owner, you are probably aware that it will be necessary to file an annual business income tax return. In order to successfully take advantage of all the legitimate deductions, it is recommended that you engage the services of a qualified CPA.
Knowing which deductions to apply and how to capitalize on them you first need to know what category your business is: sole proprietorship, partnership, or incorporated. Once the CPA understands the structure of your business, he or she will be able to properly prepare your T1 and possibly a T2.
Home-based Canadian businesses can capitalize on the deductions for home maintenance and home ownership. A CPA will be quite familiar with all the rules that govern those issues. He or she will be able to tell you whether or not you are able to consider that a business expense and how best to apply the maximum amount to defray a portion of any tax you may owe.
There are other Canadian deductions to consider:
Capital Cost Allowance (CCA) – This is a deduction for equipment that is depreciable. First you need to understand what is depreciable like computers and what is not like land. There are almost 20 different items that can be considered for depreciation and a CPA will know which are applicable and which are not.
Registered Retirement Savings Plans (RRSP) – These are only appropriate for sole proprietorships or partnerships. There are limits to the amount that will qualify as a deduction. Your CPA can also advise on how to structure and time your RRSP contributions so that you will have the best tax advantage.
Employee Gifts – There are very specific rules about what is fully deductible and what is considered a near-cash gift. The details of these gifts become highly important when trying to claim deductions on a business tax return. Your CPA will understand the nuances and be able to guide you in advance about what to give and how to give it. If you have already been kind enough to give a gift to an employee, the CPA will know how much, if any, can be declared on your return. This is tricky.
Obviously, all of this requires detailed and specific knowledge of the regulations governing business tax returns, which is the expertise of a CPA. It also means you will be freed from the tedious task of preparing the return and hours of research to know what you are entitled to and what is not allowed. It also provides a greater security for the accuracy of your returns avoiding an audit.
A CPA can also give you advice about incorporation benefits and disadvantages, if you are not already incorporated. They can provide suggestions about what to do in your next fiscal year to take better advantage of the deductions allowed. Knowing which receipts and documents to keep and have ready and which are extraneous will also benefit you in the future.
In short, if you were on the fence about whether or not to use the services of a CPA for your business tax return, this information should help you decide.
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- The Capex Team