What can business owners do in the last few months of the year to support their year-end tax planning?
It’s that time of the year where many of us are thinking about wrapping up 2022 – we are thinking about holidays, winter vacations, family time… and of course, TAX PLANNING!
Now is the perfect time to be thinking about year-end tax planning. We get it that planning may feel onerous and painful, but honestly, it doesn’t have to be!
Here are a few suggestions for you to follow to help ease the process and set you up for a smooth tax season:
- Make sure your bookkeeping is up to date.
Keeping your books current is one of the most important things a business owner can do. Whether you handle your own bookkeeping or outsource it, keeping it current allows you to make more informed decisions when it comes to tax planning such as:
- Allowing you to confirm the amount of money you’ve withdrawn from the corporation. This is the starting point for determining the amount of dividends, bonuses, or other planning strategies that you’ll need in place for 2022.
- You’ll be able to more accurately prepare your financial projections and budget for the upcoming year, as well as plan for any cash flow impacts your business may have.
- Plan for your future personal cash needs.
Take some time to consider what your cash needs will be for the upcoming year. Will they be similar to this year? Do you have any big purchases on the horizon?
Planning for your future cash needs will allow you to more effectively plan for the combination of dividends or bonus to be declared in the current year. By knowing whether you expect to draw more (or less) from your corporation next year, your accountant will be better prepared to assist you with the tax planning opportunities that are available to you.
- Make RRSP contributions
Consider making RRSP contributions if you have available contribution room. Every dollar you contribute to your RRSP directly reduces your taxable income for the year, which results in this being one of the most effective ways to reduce your personal tax bill. You can also shelter your investments from taxes within an RRSP which make them a very appealing investment strategy.
You can check your RRSP contribution room by looking at your 2021 Notice of Assessment for your personal tax return.
If you typically make charitable donations, have a conversation with your accountant about whether those charitable donations should be made personally or through your corporation.
It is helpful to chat with your accountant about your personal tax situation; what works for one person or family will be different for everyone. Tax planning is a holistic and dynamic exercise with many complexities to consider, based on your own goals and situation. Reach out to our team at firstname.lastname@example.org to schedule a time to connect on your personal tax strategy!
Thank you to the wonderful MOD team member who wrote this great blog post for us!