Preparing and filing taxes are at the end of the priority list for many businesses, as it can be a difficult and confusing process.
However, running a successful business requires you to know how Canadian income taxes work and how you can save money in the process.
In simplest terms, corporate tax is a tax placed on the profits of a business, organization or corporation. The profit includes revenue minus cost of goods or services sold, general and administrative expenses, marketing, and other operating costs.
The tax return you need to complete and file will depend on the structure of your business. Understanding which business expenses qualify as legitimate income tax deductions will help you maximize those deductions and make the most out of your returns.
Types of Companies
When you first start your business, you have the choice to choose which type of structure you’d like to follow.
The most common types of business structures are sole proprietorship, partnerships, and corporations. When choosing the type of business, some factors to consider include the number of employees, overall business goals, and revenue expectations.
A sole proprietorship is the simplest form of business to operate, as it’s owned by a single individual. Unlike an incorporated business or partnership, there is no legal separation between the business and owner, making the owner liable for any issues caused.
As implied by its name, a partnership is a type of business created when two or more people join resources and start a company. Both partnerships and sole proprietors report their business income on a T1 personal income tax form.
A corporation is a type of business that has a clear legal entity separate from its owners.
Since this business is structured with shareholders, directors, and employees, it’s better suited for larger companies. Your business income will need to be reported on a T2 corporate income tax return.
Maximize Your Tax Deductions
Corporate taxes can take away a significant portion of your profits, making it crucial to take advantage of all opportunities to lower your tax through deductions.
The costs associated with starting a business are often deductible during the first few years of the business’s life. Such expenses include office supplies, equipment, and utilities.
Advertising expenses, such as the cost of business cards, and digital or print advertising materials can be deducted as well.
One of the best practices a new business can partake in is seeking advice on tax implications from professionals and consultants. The fees paid for such services are generally deductible for the year they are acquired.
Tax Accounting and Financial Services in Ottawa
All businesses need a solid financial foundation in order to be successful.
Although it may seem like managing your own finances and being in charge of accounting responsibilities is a great way to save money, it often leads to inaccuracy.
With the help of our expert financial skills, you’ll be able to focus your efforts on expanding your business and generating more revenue. Our accounting and bookkeeping services can help you get the best returns possible and prevent you from overpaying on taxes.
Get in touch with us today to learn more about our financial services.