While the end of 2019 is approaching, there is still some opportunity for both self-employed persons and owner managed corporate business review their financial situation. Here are some of the yearend tax planning ideas a self-employed person or corporate business owner might want to explore.
Paying family members a salary or wages before December 31st for services they've provided to the business is a great income splitting opportunity. In order to support payments to family members, you should review the services family members provided in 2019 and determine the amount that are justify as reasonable compensation. While the family member would be taxed on their compensation payments, they may be in a lower marginal tax bracket than you and therefore pay little or no tax on this income. At the same time, your business should also be entitled to a deduction for tax purposes for the same amount.
If you are considering buying assets for use in your business in year 2020, you may want to consider buying the assets and having them available for use in the business before December 31st in order for you to claim capital cost allowance (CCA) in 2019, rather than waiting until 2020 to buy those assets. Even though the half-year rule provides that only half of the CCA otherwise allowable can be claimed in the year that you buy an asset, you would have accelerated your deductible CCA by one full year to 2019 rather than waiting to deduct it for 2020.
If you are planning to sell depreciable business assets, you may want to consider delaying your sale until 2020. By delaying your sale of assets to next year, you can reduce your income by deducting CCA in 2019. In addition, if you previously claimed CCA on these assets and the sale may give rise to recaptured CCA (i.e., treated as ordinary income in the year of sale), you can defer the tax on this ordinary income (recaptured CCA) to 2020.
If you are looking to reduce taxable income in 2019, you might want to consider making certain business expenditures before December 31st in order to claim a business deduction for these expenses in 2019.
If you are able to put off receiving income until 2020, you may be able to defer the tax on that income for a full year. This may be accomplished if you postpone the completion of work or the issuance of final invoices.