Kent Greaves 2 Comments

What is Tax Planning?

Tax Planning is far more than just saving up for your taxes, or keeping your fingers crossed you’ll receive a tax refund so you can buy that coveted something. Tax Planning is about being fiscally strategic, and using the rules in the Income Tax Act to pay the least amount of tax possible while maintaining compliance with the law. For most people, the single largest expenditure in their life will be income tax. Take for example a person earning $125,000 per year. Based on 2016’s tax rates and some reasonable assumptions, they would pay $33,962 of tax in one year.  Take that over a working career of 30 years, and that’s $1,018,860 of personal income taxes…yikes! Proper (and legal!) tax planning can significantly reduce the amount of tax you pay.


Diving into tax planning takes knowledge and organization – the overall goal is to manage your effective rate of tax, and to keep that rate as low as possible. We have created a chart to help you understand where your effective rate of tax currently sits to give you a baseline to work from. Using the chart, find your income in the column called “Personal Income – Wages” and see what your effective rate of tax is (the column on the far right). A healthy tax plan has an effective rate of tax around 20%.

To improve your effective rate of tax, at Kent Accounting & Tax, we start by using the basic concept to defer, deduct and divide income where possible.

Defer: Do you have the ability to defer income so that it is earned over many years, as opposed to in a single year?

Deduct: Have you been using all of your deduction opportunities, like RRSP’s, capital gain exemptions, small business deductions or others?

Divide: Have you considered dividing your income between trustworthy family members (for example, if you earn $200,000 a year in your small business, can you share that income between yourself and your spouse, so that you both make $100,000 a year and have lower overall taxes?)

At Kent Accounting, we ask questions that lead to solutions – contact us today for more advice on how to optimize your tax planning opportunities.

While there are many straight forward tax planning opportunities, it’s not as easy as shifting figures from one column to another. The law on tax planning is complex and difficult to understand Make sure you’re making the right moves for tax planning – book a consultation with Kent Accounting.

You may think that you have followed the letter of the law when creating your tax plan, but even the CRA can get confused. Even more frustrating is that the CRA rules change on an annual basis, and as accountants, it’s our job to stay educated and up to date on changes. Incorrectly assessed taxes can lead to issues with your tax planning, making it even more important to work with a qualified accountant. Let Kent Accounting take care of the minutia of tax planning.

The more time you invest in building a strong tax planning strategy, the lower your effective tax rate can be and the more you can save.  If you pay 20% tax instead of 25% tax over the term of your career, the amount of money left on the table is staggering. If you were to save $25,000 per year, from age 35 to 55, and invest those savings at 6%, you would have $974,818 of extra money to spend in retirement. To get started on your Tax Planning Strategy, contact Kent Accounting & Tax today.

 


Disclaimer: tax rules change frequently and can depend on your individual circumstances.  The above is not to be relied upon as tax advice and is meant for information purposes only.  Please consult a tax professional.

Kent Greaves 1 Comment

Smart Tax Deductions for Small Business Owners

Getting the most out of your business tax deductions requires more than just the diligent tracking and filing of your expenses – to maximize your business returns, you need to know what you can and can’t claim come tax time. However, understanding what components of your business qualify for a tax deduction can be a challenge for many owners – you are busy enough as it is running your business. Prioritizing and tracking the expenses you can claim can fall to the wayside. Kent Accounting has put together a simple list of the best tax deductions for you to record and claim to make the most of your yearly tax return.


Client Hospitality

Building strong relationships are essential to business, and the Canada Revenue Agency understands this. When you host your clients and take them to events, you can claim that for a tax deduction. Relationships can grow stronger when there’s a connection, so why not use that tax break to your advantage and treat your clients by taking them to events you enjoy. These events give your customers a chance to get to know you better as a person, and allow you to receive a tax deduction for doing fun things you will enjoy! How much on the dollar will you get back? Connect with Kent Accounting to find out.

Rewarding Your Employees

The hard work and dedication of your staff should be rewarded, and the Canada Revenue Agency knows this as well. So how can you build loyalty with your employees? Taking them out for exciting and unique team building events benefits small business owners, as job satisfaction levels increase, but it is also a claimable expense. To receive a tax deduction for employee parties and outings, all employees must be invited to attend so make sure to pick a variation of events and themes throughout the year that all your employees can take part in. How much on the dollar will you get back? Connect with Kent Accounting to find out.

Vehicle Mileage

Whether you drive a little for your work, or a lot, claiming your vehicle mileage is simple. In fiscal 2017, for every kilometer you drive, the company can reimburse you, tax free, for 54 cents per kilometer for the first 5,000 kilometers (i.e. if you drive a personally owned vehicle 1,000 KM’s for business purposes you can receive $540 tax free from the company). Depending on the vehicle you drive, the actual cost of driving is closer to 20 cents per kilometer, so tracking and recording your mileage can add up to extra money that’s tax-free. To regularly track your distance, consider an app for your smartphone or go the old fashion route by printing out a simple spreadsheet to keep in your glovebox. Does your commute qualify as vehicle mileage? Connect with Kent Accounting to find out.

Company Owned Vehicle

If your vehicle needs an upgrade, then leasing it as a company owned vehicle will allow you to claim up to $800 a month in fiscal 2017 for the cost of that lease. You are allowed to use a company owned vehicle for personal purposes, but you do pay personal tax via a taxable benefit at year end. Make sure you fully understand claiming your Company Owned Vehicle – contact Kent Accounting here.

Home Office

Claiming your home office on your taxes opens up deduction possibilities, such as mortgage interest, insurance, property taxes and utilities, to name a few. There are rules on how much time you must spend working in your home office to allow you to claim it on your taxes, so consulting with an expert Calgary small business accountant will allow you to make the most accurate tax filing.  Connect with Kent Accounting for help calculating the percentages of your bills that you can claim on your taxes.

Investing In Canadian Privately Held Companies

Investing in a Canadian small to medium business is not just good for your taxes, it is good for the economy, and it is good for your fellow business owners. There are many great advantages to starting your own small business, here are two of them:

Benefit 1: in fiscal 2017, when you earn income in a privately held company, you only pay 13% tax on those earnings.  This allows you to invest 87% of your money in new business ventures or the stock market. As an employee of a company, depending on the tax bracket you are in, many pay 35% tax which would only allow them to invest 65% of their money.  There is a substantial difference in investment potential.

Benefit 2: in fiscal 2017, if you sold a business for $824,176, you would pay zero in tax (note there are several restrictions on the type of business that qualifies).  This is one of the strongest tax deductions that are available to you as a Canadian resident and should be carefully considered as you plan your career.  The Canadian government provides this tax benefit as an incentive to you to start your own business.

To get a better idea of how to invest your funds in a Canadian privately held company, contact Kent Accounting today.


Disclaimer: tax rules change frequently and can depend on your individual circumstances.  The above is not to be relied upon as tax advice and is meant for information purposes only.  Please consult a tax professional.