Easy ways to pay less tax
Business writeoffs, income splitting and other savvy savings
With tax season still half a year away, there’s plenty of time to learn how to decrease the amount you’ll owe — or increase what you’ll get back. Here are some suggestions to get you started: Mind your own business Have a bit of extra time on your hands? “These days, many people are turning a hobby or skill into a freelance business to supplement their income,” says chartered professional accountant Philip Goldband, a partner at G&G Partnership, LLP, in Toronto. “There are tax deductions available to you that could be used to reduce or possibly eliminate the taxes you would otherwise pay on this incremental income.”
For instance, you can write off the business use of your home as an expense.
“If you have a room in your home exclusively used for your small business, you can deduct a portion of the costs you pay to maintain your home. Calculate the deduction based on the percentage of space used for your business,” Goldband explains.
You can also add family members to your business. Perhaps your spouse can do your books, or you have a son who is a computer whiz.
“You can pay them to work for you and reduce your taxes,” explains Richmond Hill chartered professional accountant Owen Osher. “They’ll be taxed for this income, but if they’re in a lower income bracket, they’ll pay less tax than you would.”
If you use your car for your business, you can deduct all of those expenses, too.
“You have to keep a log of your mileage,” Osher says. “Then when you add up all your vehicle expenses, you can write off the fraction that relates to your business.”
Money spent on office supplies used exclusively for your business can be fully deducted, as can things such as business-related licences, dues, memberships and subscriptions; you can also deduct 50 per cent of money spent entertaining clients for promotional purposes.
“What you’re really doing is taking expenses that you might incur anyway and carving out the business portion to reduce taxes,” Goldband says. Saving the balance Even if you aren’t self-employed, there are still lots of ways to take advantage of tax savings.
“It’s a great idea to make your registered retirement savings plan (RRSP) contribution at the beginning of the year instead of the end. The earlier you make your contribution, the longer your money is in a tax-sheltered fund and the less tax will be paid,” Goldband says.
What if you don’t have the funds for an RRSP?
“It still may be prudent to borrow to make a contribution, as long as you have a plan to repay that debt,” Goldband suggests. He recommends you pay back as much as possible with your tax refund — though if you can’t pay the balance within a year, it may not make sense to borrow. Goldband also recommends looking at your investment portfolio. “If you’re at the highest tax rate, you’ll pay less tax on capital gains, more on dividends, and more still on interest. Depending on your risk tolerance, consider structuring your portfolio to deliver more capital gains than interest.”
Finally, remember to claim expenses such as child care and medical expenditures. You may be surprised at how broad the list of qualifying medical expenses is.
“Just watch that you don’t get too overly creative with your deductions,” Goldband recommends. “Listen to the advice of your tax expert.”
You can write off the business use of your home or your vehicle as a business expense