The holiday season is often the busiest time of year for business owners which means tax preparation is usually deprioritized until after the holiday rush. However it is important to remember that now is also a good time for business owners in Canada to take advantage of various tax credits and benefits which will only be available to you up until December 31st. To help you with this we've put together the below list of 7 year-end tax saving strategies.
1. Purchasing New Equipment:
If you are a small business owner or self-employed and you are planning on purchasing office equipment or furniture in 2017, it might be a good idea to make these purchases now. According to Jamie Golombek, managing director of CIBC's Wealth Advisory Services, under the 'half-year rule' if you carry out this purchase up until the last day of the year you can deduct one half of a full year's tax depreciation or capital cost allowance in 2016. This strategy allows you to then claim a full year's depreciation on the item in 2017.
2. Medical Expenses:
Another great tax credit strategy relates to medical expenses. In the same report Golombek outlines that a tax credit on medical expenses can be claimed when your total medical expenses exceed the lower of three per cent of your net income or $2,237 in 2016. The best part of this credit is that the actual medical service does not need to be acquired in the same year. A good example of this might be if your child is receiving ongoing orthodontic treatment or braces.
3. Charitable Donations:
December 31st is the final day you can make a charitable donation and receive a tax credit for 2016. Furthermore, both federal and provincial governments offer donations tax credits which in combination can actually result in up to 50% of the value of your gift in 2016. Golombek also mentions that a federal First Time Donor's Super Credit (FDSC) exists which allows you to claim an extra 25% tax credit on donations of up to $1,000 if neither you nor your spouse/common law partner has claimed donation tax credit from 2008-2016.
4. Children's Arts & Fitness Credits:
It's also worth noting that 2016 is the final year that you can claim two federal credits for your children's activities. The non-refundable children's arts credit can be claimed on up to $250 of expenses and the refundable children's fitness tax credit can be claimed on up to $500 of expenses. Here, Golombek advises again that if you don't spend enough in 2016 to maximize these credits you should consider prepaying them for 2017. He gives the following example: 'if you plan to enroll your child in soccer or piano programs for 2017, you can claim the credit(s) in 2016 if you pay for the activities by December 31st.'
5. Home Accessibility Tax Credit:
Another tax credit which was introduced this year is the Home Accessibility Tax Credit (HATC). This tax credit was introduced to help seniors or people with disabilities with the cost of home accessibility renovations. The credit is equal to 15% of up to $10,000 of expenses per year relating to renovations focused on making homes more accessible for these individuals. Payments made by December 31st 2016 for work carried out or goods bought in 2016 will be eligible for the HATC.
6. Keep Detailed Records:
It's equally worth mentioning here that the more organized your receipts/invoices and financial documents in general are, the better off you'll be come tax season. You should make a conscious effort to file all financial documents away in a logical management system which could be easily accessed if you became eligible for an audit. This practice will save you both time and money in the long run.
7. Pay Investment Expenses:
Certain expenses relating to investments carried out must be paid by year end to claim a tax deduction or credit in 2016. This includes investment-related expenses, such as interest paid on money borrowed for investing and investment counseling fees for non-RRSP / RRIF accounts.
You can read more on Jamie Golombek's year end tax tips here.
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