Tax Reductions: Save More By Paying Less
Givens LLP | April 17, 2023
Have you looked at your income and thought, “I wish I could keep this all to myself?” While that’s not possible - not legally anyway - there are ways to decrease your taxable income.
The good news is, if you’re a business owner, there are many tax reduction strategies that you can utilize to ensure you're keeping the most you can in your business, and in your pockets! Let’s get into them.
Tax Credits VS Tax Deductions: How Do They Differ?
Tax credits reduce the tax amount that you owe, which means it lowers your final bill. These are fairly standard across the board in that regardless of how much you earned, the amount deducted will remain the same.
This type of tax reduction can be refundable or non-refundable. Non-refundable tax credits can reduce your tax owed to $0. However, they will not be paid if your tax owed is lower than the credit.
Types of tax credits:
- Personal tax credit
- Tuition credit
- Medical expenses
- Interest on student loans
- First-time home buyer's credit
- Disability expenses
Tax deductions, on the other hand, reduce your taxable income based on your marginal tax rate and are expenses that you can claim. When you have a higher income, your marginal tax rate is also higher. Therefore, your tax deductions will increase too.
Types of tax deductions:
- Professional fees relating to gaining income (accounting fees, broker fees, etc.)
- Interest on loans used for investments
- Employment expenses
- Moving expenses
- Business investment losses
- Childcare expenses
- Legal fees - relating to gaining income
The mightiest and most common tax deduction available is the RRSP since all investments within RRSPs grow “tax-free.” This tax-deferred account is intended to assist Canadians in building their retirement nest egg and to start drawing from them at a later stage in life when personal income tax levels are lower.
Owning A Business Increases Your Deductions!
Business income is taxed far less than full-time employment income. On top of that, the deductions available to you as a business owner are much more numerous and varied.
This is because you can deduct most of your business expenses from your taxable income. Essentially, anytime you are spending money to run your business (i.e. paying for fuel to make a delivery), you can claim that spending as a business expense, and it will be deducted from your taxable income.
Say you make $100,000 a year but spent $30,000 running your business. You can claim that $30,000 in tax deductions, lowering your taxable income to $70,000.
Some common examples of business expense deductions are:
- Meals and entertainment
- Advertising and promotions
- Fuel & vehicle expenses
- Rent or a portion of your personal home office
There you have it! Although there’s no way to get around paying taxes, there are ways to reduce it through tax credits and deductions. Does this all still seem a little overwhelming? That’s why we’re here. Givens LLP are your tax experts, so you don’t have to be. Call us today, and let's make your taxes work for you.