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How can your home business benefit from these so called savings and what are the differences between savings and expenditures?
With the Canadian income tax deadline approaching on April 30, 2010 there is a rush of people trying to get that anticipated return. As a graduating business student and entrepreneur I have realized how important it is to understand how tax credits and tax expenditures can impact any business. There actually is a big difference between tax expenditures and tax credits. So how can your business benefit from these tax options?
One of my textbooks refers to tax expenditure as “a revenue loss caused by the exclusion of some item from the tax base (Rosen).” Non refundable tax credits are tax expenditures because they count as deductions from the tax base but yet no actual transaction of money exists. Meaning that any deduction such as education tax credits, business tax credits, personal tax credits that are non-refundable, are simply exclusions to the tax base on behalf of the government. This is a benefit to us.
The Government’s goal for offering tax credits to students and business owners is to reward them for the commitment to getting an education or starting a business. It’s more of an investment by the government on students and entrepreneurs with the expectation that they will bring value to the work force. Educated people tend to earn more, or are more likely to start a business and become assets to the Canadian economy. This investment in the work force is beneficial to the future
Non-refundable tax credit options include: public transit passes, home renovation expenses, interest on student loans, tuition, textbook, and education credits, home buyer credits, and many others. For a complete list of non-refundable tax credits, check out the Canada Revenue Agency.
Tax savings such as the $2,844 you get back after the two years of being enrolled in my diploma program, are paid out in the income tax return. Therefore a payout of cash is a tax savings, as you are actually receiving the money based on your income; another benefit to us.
It’s really important to understand the difference between these benefits so that us as business owners and individuals can get the best possible return. The government doesn’t make these rules for nothing! IF you file your taxes yourself, you need to have a clear understanding of how to maximize each category. That being said, even if you have a good accountant it is important to have a clear idea of what you’re entitled to when it comes to taxes.
As a business owner, you are also entitled to “write off” tax deductible expenses. These expenses are still incurred by the business however the government waves the tax come tax time. Tax deductible expenses include: advertising and promotion, administrative fees, business taxes, bank fees, conventions, dues and subscriptions, insurance, interest, licenses and fees, meals and entertainment, office supplies, professional fees, rent, property taxes, travel, telephones, etc. The deductible expenses vary depending on where the office is located; if it’s a home office, if there is automobiles involved, etc. Important: All business expenses must be incurred to earn income to be considered tax deductible. Again, you should consult with an accountant or the Canada Revenue Agency for their list of allowable expenses.
One of the many benefits of owning a business is the tax advantages. It doesn’t have to be expensive or complicated, and can make a big difference in your finances. If you don’t use an accountant, I highly recommend finding a good one. I have never met anyone who regretted it.
Cheers to a healthy tax return,
Mike Perrin
to schedule enough time for their network marketing business.
