Taxes can make any small business owner want to pull their hair out. As a small business owner or entrepreneur, you probably wear many hats. You probably take on not only the role of CEO but overseeing other elements of your business such as marketing and finance. However, 60% of small business owners feel they don’t know enough about accounting or finance. Learning about the financial system and tax breaks in place can help you save big and benefit your business.
After you have put in all that hard work, the last thing you want to do is hand over more of your hard-earned dollars to the taxman. Thankfully, there are some ways to reduce your tax liability and keep some more of that hard-earned cash.
What Are Tax-Advantaged Accounts?
If you are in the US, you have probably heard of IRA’s and if you are a small business owner in Canada, you have probably heard of TFSA or RRSP. The above mentioned are all forms of tax-advantaged savings accounts. But, what exactly does that mean?
In short it means that you’ll pay less tax on the money you contribute. It gives small business owners or anyone for that matter the opportunity to earn a investment income at a lower rate of tax than normal. By investing in a tax advantaged account as opposed to using a personal account for investing, in general, you will find you have more after-tax cash at the end of the day.
This TFSA calculator showed that if you invested a lump sum of $20,000 at the time of writing and $500 a month for 20 years you could save close to $10,000 in tax by using a tax-advantaged account. Not to mention the potential your money has to grow by being invested in the stock market. Business owners should harness the power of these tax advantaged accounts to give less money to the government and keep more in their pocket.
In the US, IRAs are designed to work as retirement accounts. However, they are also a great way to gain tax-free earnings to save for your personal future or your businesses future. With IRAs, you can withdraw any money from the account without a penalty but are not able to withdraw the interest.
In Canada, you can choose what to invest in your savings account from a range of instruments. You are not limited to cash but can also choose exchange traded funds, property, stocks, bonds, and of course cash.
Why Should You Get a Tax-Free Savings Account As a Small Business Owner?
Tax-advantaged accounts have become a big thing for investors but many small business owners are still not aware of the perks. Small business owners can save cash, invest it, and withdraw the funds later to start or expand their business or save for their personal future. You could also use the account as an emergency fund to keep your business going in hard times (if you can handle the swings of volatile markets.
With 30% of new businesses failing because the owners run out of money, having a rainy day fund and starting to invest your money from the beginning is a great way to ensure the successful future of your business.
Both Canada and the US governments are offering tax-advantaged accounts but not a lot of small business owners are taking advantage of them. Start thinking about your personal financial future as well as the future of your business and take advantage of the great tax breaks available to you.