The end of the year often brings excesses of spending, not saving, as we search for the perfect gift for each person on our Christmas list. But the end of the year is also a great time to think about saving, as tax time will soon be here, and with it, many opportunities you may not have considered for putting a bit of extra money back in your pocket.
If you do some or all of your work from home, there are many write-offs available to you that can help increase, rather than decrease, your bank account come tax time. You may already be aware that you can write off a percentage of your monthly housing costs as a business expense. A safe rule of thumb is to calculate the total area of your home and determine what percentage of that is used for your office needs—that percentage is the fraction of your housing cost (rent, hydro, etc.) you can reasonably write off as a business expense. And don’t forget your monthly phone and internet bills when tallying potential write-offs!
Business owners who do a lot of entertaining can also realize significant tax savings by keeping careful records. Even the little things add up—you may not think to write off that time you bought coffee and doughnuts for your design staff, but if you do it every Friday and always keep your receipts, it can be a significant tax savings.
Another area of potentially huge tax savings that many businesspeople don’t take full advantage of is mileage write-offs. If you use your car to see clients, attend trade shows, make deliveries, or for any other business-related trips, you can write off your mileage at the current rate of 47 cents per kilometre (in Ontario. Other provincial mileage rates are at available here .) The easiest way to keep track of mileage is to keep a little notebook in your vehicle and log the distance and purpose of each business trip. Then when it comes time to do your taxes, you’ll have a solid record of exactly how much you can write off.
If you own your own business, you also have excellent income-splitting opportunities that can substantially reduce your tax bill. Employing a stay-at-home spouse or a child looking for his first after-school job is a great way to save on taxes. Any salary that your spouse or child receives will be taxed at his or her (presumably lower) tax rate, but will still stay in the family. In short, the gross income is the same, but your family’s net income increases because you’re spreading it between two or more family members. Employing a son or daughter is also a great way to get your children started on saving for post-secondary education without the often less-favourable tax implications of an outright cash gift.
December isn’t often accompanied by piles of extra cash, just waiting to be used, but if you do have some extra income or some cash earning 0.0005% in your chequing account, it’s great time to sock away a bit extra in your RRSP. For someone making $75 000 a year, every dollar saved in an RRSP or a spousal RRSP means an extra $0.35 back at tax time—plus, you’ve saved the original dollar and will get to spend it later! The deadline for making RRSP contributions that can be used against the 2006 tax year is actually March 1, 2007, so even if you don’t have the cash to contribute now, you do have some time in the new year to use up your RRSP contribution room and get a little extra something back in April.
The above are just a few of the ways you can save on your taxes this year, and most of them are easy to implement. But it’s always a good idea to consult a tax professional to get advice that is customized to your situation. Business owners can find a local Chartered Accountant by checking out http://www.casource.com/. For information about ways to save personally, your best bet is to find a Certified Financial Planner in your area, which is easy to do at http://www.cfp-ca.org/public/public_findaplanner.asp.
We all wish to discover that tax loophole that will immediately save thousands of dollars, but such revelations are rare at best. Instead, focus on several small areas of savings that can quickly add up to a big refund come April. They may not be as flashy or make such great cocktail chatter, but careful attention to potential write-offs and other tax-saving strategies will bring you many happy returns.
Catherine M.A. Fox-Wiebe writes, edits, and delights in life in Hamilton, Ontario.
She welcomes comments at catherine@graphicartsmag.com.
