Tax time can mean big headaches for smaller businesses. But it doesn’t have to. Here are some tips to help your SMB squeeze the most benefit from technology-related expenses, write-offs and tax credits.
Be smart with your smartphone
The top tip from Edmonton-based tax expert Jennifer Steeves is to “keep really good records and receipts throughout the year.” The reality, however, is that SMB owners are often so busy that they let this fall through the cracks. So Steeves suggests snapping a picture of each receipt as soon as it’s generated. “Take a picture of a receipt right when you get it. Then email it to yourself or send it somewhere like Dropbox or Evernote,” says Steeves, group product manager for Turbo Tax in Canada. And Steeves says the Canada Revenue Agency (CRA) considers virtual expense receipts to be as valid as paper ones. (For non-expense tax documents like T4s or pension statements, Steeves says CRA does require originals, however.)
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Decide if buying beats leasing
Most business owners know they can claim depreciation costs on computer-related purchases. “Most of those things like software and small hardware purchases have a depreciation range of about five to seven years and different classifications. So you can take the cost of that item and divide it by five or seven years and deduct that over the course of your taxes,” Steeves says. (As laid out in CRA guidelines, depreciation rates can depend on the type of computer item, its cost and when it was purchased.) But some SMBs may not realize that leasing computer equipment has different tax implications than buying it.
“If you lease, you can deduct all of your lease costs for each year that you have (the computer). So you need to look at how long the asset will last before you decide it’s too old and you need a new one,” Steeves says. Basically, if you’re planning to use the same computer for five to seven years (which seems like an eternity in today’s tech refresh cycle), then buy it, since you can fully depreciate it over that period. But if you plan on replacing your computer sooner than five years, it might be better to lease it because you can claim full depreciation on the leasing costs for each year of the lease. If you buy a computer and then replace it in, say, three years, you won’t own it for the five to seven years required in order to fully depreciate its cost.
Look into R&D tax credits
Many SMBs assume that only huge corporations in the high-tech sector qualify for research and development tax credits. Not so, says Mitch Silverstein, with Richter LLP . “They don’t understand how wide and deep (the programs) are. Just because you don’t have people walking around in lab coats it doesn’t mean you don’t qualify.” Check out the guidelines for the Scientific Research and Experimental Development (SRED) tax credit to see if your firm qualifies. A list of other federal and provincial R&D tax credits is available from the Canadian government’s Canada Business Network.
Searching and applying for R&D tax credits can suck up a lot of time for SMB owners, however, so Silverstein recommends getting help from a tax expert. His firm offers this service on a ‘success fee’ basis, meaning they’ll help you prepare your application but you don’t have to pay them unless your application succeeds.
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Don’t forget non-R&D tax credits
In the past year, have you set up an e-business, hired a grad student to research your technology project, recruited a foreign innovation expert, or sold new products developed by Canadian colleges or universities? Then you may qualify for various non-R&D tax credits offered at the federal and provincial level. For an exhaustive list of all types of federal and provincial tax credits, sign up for a free account on Fundica, which also lists various funding resources for SMBs too. To save time and cut down on frustration, Steeves suggests contacting your city’s local business development office because they probably have lots of experience in how to submit such applications successfully.
Don’t be afraid of tax technology
“A lot of SMBs hesitate to use tax software, thinking that if they don’t know something, the software won’t walk them through it,” Steeves says. But most programs offer step-by-step guidance plus experts over the phone (Turbo Tax Home and Business users can call live experts from 7 a.m. until 1 a.m. ET until May 3). And cloud-based tax programs can be accessed anytime, anywhere and are updated constantly. Cloud-based Turbo Tax is synched with QuickBooks Online, too.