Profit Maximization Through Tax Minimization
Givens LLP | April 20, 2023
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Are you tired of paying a fortune in taxes for your business? The key to saving money and walking away with more come tax season is to plan ahead! Don't wait until it's too late to make changes that can significantly impact your tax-year liabilities.
In this blog, we'll explore effective tax reduction strategies that can help your business save money and thrive. So let's dive in!
The 3 Keys to Tax Reduction
It all starts with understanding your financial status, operational structure, and long-term business goals. Givens’ expert accountants can help you analyze and fine-tune these to achieve your business goals.
But where do you go from there when looking for the right tax reduction strategy? We've got you covered there too. You have a wide range of options when it comes to minimizing your company's tax obligations. These include:
- Business Entity Change
Changing your business entity can reduce your tax obligations. Incorporating a sole proprietorship, for example, provides tax advantages like reduced tax rates and the benefit of tax deferrals. Deferrals allow an individual taxpayer to postpone paying personal taxes on money earned until it is withdrawn. Instead it is taxed in the corporation at a substantially lower rate. - Asset Purchase Timing and Capital Cost Allowance
Another helpful tip to remember is to purchase assets before year-end and maximize your capital cost allowance (CCA). Buying assets before year-end reduces taxable income by claiming depreciation on the tax return, while maximizing CCA allows claiming a greater deduction for depreciation annually, lowering tax obligations.Just make sure that any purchases align with your business needs and financial goals first!Pro Tip: Planning these strategies carefully is crucial to avoid overextending cash flow and purchasing unnecessary assets. We advise consulting a professional (like us) on the best course of action. - Income Splitting & Shareholder Remuneration
By distributing income among family members in lower tax brackets, you can lower your overall tax liability!
We outline the nitty gritty of income-splitting in this blog.
And if that's not enough, consider shareholder remuneration. Instead of paying a salary, paying your shareholders dividends can result in lower tax rates and reduced payroll taxes. Additionally, by doing so, you can circumvent the CPP, resulting in significant annual savings of about $7500 at the 2023 rate.
Tax Reduction Don’ts
While tax reduction strategies can be an effective way to lower your business's tax obligations, it's crucial you avoid these DON’Ts because tax evasion or avoidance has serious consequences.
Red flags when implementing tax reduction strategies:
- Artificial transactions: transactions that are created solely to obtain tax benefits and have no legitimate business purpose.
- Improper documentation: ensure that all supporting documentation for your tax reduction strategies is accurate, complete, and in compliance with tax laws.
- Abusive tax shelters: these “shelters” promise unrealistic tax savings or use complex and convoluted structures to avoid taxes.
- Non-arm's length transactions: be cautious of transactions between related parties or those with a close personal or business relationship.
- Failing to disclose information: omission is not a line of defence. All relevant information must be accurately reported on your tax returns and disclosed to tax authorities to avoid penalties and fines.
Identifying and avoiding these red flags to ensure that your tax reduction strategies are legal is more complex in practice than in person. Allow us to uncomplicate it for you. We’ll make sure all of your tax T’s are crossed, and reduction I’s are dotted for full tax law compliance.
Assessing and lowering a business's tax liability through careful preparation and minimizing your taxes is the key to maximizing your profits.
With the ever-changing tax rules, it can be challenging to know what will work best for your business. Get in touch with us today so that we can effectively minimize your taxes together!
Givens, where your future is our focus.
If you found our guide to tax reduction strategies insightful, you’ll gain even more business growth best practices by downloading our FREE Givens Growth Guide!
