4 Tips for helping Small business optimize income

4 minute read time.

For people who start, run, or work in a small business taxes play a big role in your day to day life. It can be one of the biggest expenses a company faces.

The tips we've highlighted below are based on Author Jane Barratt's Lynda.com video series called Taxes for Small Business

In the following, we'll look at what's important for small business owners and managers to understand about tax. As always, we suggest following up with your accountant if you have any questions about taxes.

Strategies for reducing taxable income

Reducing your taxable income is possible and legal. Many of the ways you do it are good for your business. The following tips should be considered alongside advice from your accountant or tax lawyer as what is legal and expected in some countries, may be considered tax fraud in another.

Here's a checklist to use as a starting point.

TIP #1: Are you taking advantage of deductions?

In many countries, most business expenses are deductible from gross income. The impact of which is that you have a smaller revenue base that's taxable. Just make sure that you're making the right deductions for you. Sometimes, that could be a choice that's not super-clear. For example, if you have vehicles as a part of your cost base, in the US and in Canada, you can use actual cost on mileage-based deductions.

View our Sage50CA resources : Save money, track vehicle expenses and mileage using MileIQ in O365!

TIP #2: Are you considering when to claim expenses?

You may be able to elect when you claim certain expenses or income. For example, depreciation costs of equipment. You may have the option of accelerating the depreciation in the year that you purchase the equipment, or taking deductions over the requisite years. Make sure you're using elections to time expenses or income to your benefit.

See these CRA resources:

TIP #3: Are you flexible with how you pay your staff?

When you have full-time staff, there's a level of expenses that come with them, including payroll taxes.

When you give them a raise, your payroll tax expenses, and other levies will probably increase. Maybe you can give a raise in the form of benefits instead, like better insurance or higher contributions to tax-deferred retirement plans, and avoid the tax burden for both you and your employee. Even as a business owner, you should be putting as much tax-free money into retirement funds for yourself, too. The concept of the bus seats last should not apply to your retirement, especially when there's tax advantages in putting money away for yourself.

TIP #4: Are you flexible with deferring income?

If you meet with your accountant once a year, you may be missing strategies throughout the year to optimize your tax burden. Delaying sending invoices and paying bills early may go counter to the instincts of most business owners. But sometimes, this strategy can make a huge difference to your annual tax bill. Keep track on a monthly basis what your tax burden will most likely be, and if there's an opportunity to reduce your tax bill by deferring income or accelerating payments, it's worth exploring.

Put Sage Intelligence (which is included with the Office 365 integration*) to use, learn about Sage Intelligence's New Look and Feel

One thing to remember is that these strategies are applicable if you're making a profit. If you're company's losing money or just breaking even, it is much less relevant for you. But, losses may also be considered deductions against future years' income. So, all's not lost. Tax planning really is a year-round effort. Keep an eye on your gross income as a year progresses and be mindful of the ways that you can reduce that income to reduce your taxes.