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From an accounting perspective, there are a number of simple, but effective ways in which small business owners can optimize their tax planning approach.In Canada, taxpayers are subject to a system of income tax brackets.Donating part of your wealth to charity can yield a tax deduction and, beginning in 2018, the deduction limit for cash contributions to eligible charities increased from 50% of Adjusted Gross Income to 60%.
If you operate a business that's taxed as a pass-through entity, you may be able to deduct 20% of your qualified business income right off the top, with certain limitations.
If you're a high-income earner who owns a business, you may want to explore the advantages of forming a limited liability company to take advantage of this deduction.
It should be noted that family members on payroll should not be overcompensated.
Good policy is to pay family members fair compensation for work performed.
If your business operates as a C-corporation, you won't be able to take advantage of the deduction but the tax bill does reduce the corporate tax rate from 35% to 21%, offering another potential avenue for tax savings.
Strategy and planning are always a key focus area for any small business.For many business owners, this means paying the maximum amount for both the personal and company portion of CPP.For 2015, the maximum contribution amount is almost ,000 dollars.Currently, the after-tax cash received at the individual level is largely the same for both wages and dividends in most cases.That being said, those that earn salary are still subject to paying into the Canada Pension Plan.While each class differs, the majority of classes are subject to what is known as the half-year rule.When the half-year rule applies, a business can only claim one half of the annual depreciation in the year of acquisition.Donating to a donor-advised fund can also yield an upfront tax deduction.One final tax issue for high net worth individuals to consider is the introduction of a new 20% deduction on business income for pass-through entities.With this in mind, businesses planning to purchase significant assets near the year end date should do so before the fiscal year is over.Under this approach, the business will be able to utilize the full write-off much sooner.