Income Tax Tips for Individual Business Owners – Part II

Income Tax Tips for Individual Business Owners – Part II


If you have an unincorporated business as
a professional, self-employed or business owner and you are looking for income tax tips
to reduce your personal tax, then this is the right video for you.
For individuals, the personal income tax planning opportunities are generally very limited.
However, if you are a professional, self-employed or you own a business, in a three-part series,
I have twelve income tax tips for you to cut your tax bill for your business income. This was my first instalment of four income tax tips I had for you in the first part of this series. 1. Understand and maximize tax deductions
2. Reduce meals and entertainment expenses 3. Maximize home office expense deduction
4. Maximize car expense deduction This video is the second part of this series.
This is my second instalment of another four income tax tips for you.
5. Deduct medical expenses 6. Split income
7. Maximize interest deduction 8. Avoid non-deductible convention expenses Now let’s look at each of these four income tax tips in more details Tip number five – Get deduction for your family’s medical expenses. Generally, you
would be able to save more tax by deducting your family’s health and dental costs as
business expenses rather than claiming as medical expense tax credit. In order to qualify
for the deduction, first, you must be actively engaged in your business and your business
must be your primary source of income. Second, you need to set up a private health service
plan with a third party plan administrator. The private health service plan is essentially
a self-funded plan. It is not an insurance plan. If you have employees, you must extend
the benefits to at least one class of employees. If you have no employees, your benefit coverage
is limited to $1,500 for you and each of your family members over 18 years, and $750 for
each child under 18 years. I am aware of a plan administrator who charges a 10% on the
amounts of processed claims without any upfront setup fees. Contact me if you would like to
know how to set up a private health service plan.
Tip number six – Split income. If you have family members in a lower tax bracket, consider
employing them in your business. The idea is to split income to reduce the overall tax
bill for your family. However, there are many tax traps in this income splitting area. For
example, you need to ensure that their salary is reasonable for their services performed.
The salary should be paid periodically and preferably by cheques. There are also payroll
tax source deductions, remittances and filing requirements to consider. You should talk
to a tax accountant before acting on this tax tip.
Tip number seven – Maximize interest deduction. Arrange your family finance to make interest
deductible against your business income. As a general rule, only interest on money borrowed
to earn income from a business or property is deductible. So interest on home mortgage
is generally not deductible because your home is not an investment property. However, I
had explained in part one of this series that you may be able to deduct a portion of your
home mortgage interest if you qualify to claim home office expense deduction. Additionally,
interests on loans taken out for making contributions to your RRSP, RESP, or TFSP are also not deductible
because the income earned within these registered plans are not taxable. It is the direct use
of the borrowed money that determines the interest deductibility. Here is the tip for
you. If you need to borrow, try to structure the borrowing for your business operations,
and save the cash you generate from your business to pay down your home mortgage or contribute
to your registered plans. In that way, you will be able to convert non-deductible interest
into deductible interest. Tip number eight – Avoid non-deductible convention
expenses. The deductions are limited to two conventions a year. The portion of the convention
expenses for meals and entertainment is subject to the same 50% limitation rules that I talked
about in the first part of this series. For the convention expenses to be deductible,the convention must be in connection with your business or profession. Additionally,
the convention must be held at a location that can reasonably be considered to be within
the scope of the host organization. Note that the CRA will not allow you to deduct any costs for attending a convention held during an ocean cruise, no matter who sponsors it.
As a recap, this is my second instalment of another four income tax tips for you.
Thank you for watching. I am Claudia Ku, your trusted tax accountant. I hope you find the
video useful. Share the video with your friends and your family if you think they can use
the information. Let me know your thoughts or if you have any questions in the comment
box below. And don’t forget to subscribe my channel to watch my upcoming videos. Also
click on the link to my website to receive our free email service of Tax Tips. See you
in the next video.

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