The end of the fiscal year is fast approaching and you want to have an idea of how much tax your business will pay? Estimating your taxes will help you make informed decisions about your company's profitability.
In this article, T2inc's Montreal tax accountants list the elements you need to know to correctly calculate your business income tax.
Steps to calculate your business income tax
In order to be able to calculate your business income tax, you need to have certain documents in hand to make sure you have all the information at your disposal.
Identify your legal business structure
If you are self-employed or a general partnership (GP), your tax rate will be the same as for individuals.
If you are a corporation, the situation is a little more complicated since the tax rate depends on the nature of the sources of income and the status of your business.
Follow the applicable tax rates
If your business is incorporated, you can refer to the corporate tax rates. The challenge if you have a corporation is that you have to separate your different sources of income (sales, investment income, capital gains, rental income).
How to calculate your income tax as a corporation
If you are a service business incorporated in Quebec (corporation) with several clients, you can calculate approximately 19% tax on your profits.
This tax rate only applies to the first $500,000 of taxable income. Additional taxable income is taxed at a higher rate of 27%. Corporate tax calculations can seem complicated and we recommend that you contact experts if you have any questions.
Account for tax deductions
After calculating your taxes, your estimate may be different from the actual result. This is because there are certain tax deductions that are not accounted for the same way for tax purposes.
For example, entertainment expenses and business gifts are only 50% deductible at the federal level and even more restrictive rules based on sales are applied in Quebec.
T2inc helps you easily calculate your business income tax
Finally, the best way to determine the exact amount of your income taxes, whether personal or corporate, is to officially file your income tax returns with accurate figures. This will allow you to take advantage of appropriate tax strategies for your business.