10 Year End Financial and Tax Tips for Your Small Business
As the end of the year approaches, some of us find ourselves overwhelmed by top 10 lists, the hordes of shoppers and endless renditions of Christmas Music. Businesses tend to experience a slowdown, which makes it the perfect time for small business owners to take a closer look at their overall business, financial and tax situation. When you are not buying gifts for your customers, family and friends, a review and analysis of your business will allow you to optimize your current financial situation, implement some beneficial changes that can help avoid last minute tax preparation stress and also prepare for the future.
Watch my webinar below for small business/solopreneur tax tips in 2025:
1. Review Your Bank Account
Review your outstanding cheques and write off any cheques that have not been cashed for 6 months, as they are no longer valid. Additionally, other items that you or your bookkeeper may have been avoiding like duplicate charges, outstanding deposits etc. should be reviewed and any unidentified charges that you have noticed in your bank account should be discussed with your bank. If you have an accounting software such as QBO, ensure that you reconcile your bank accounts
If you are self employed and do not have a separate bank account for your business, I highly recommend setting one up in the new year, as this can help organize your finances even if you leave your accounting to the last minute. A separate credit card is also very useful for to maintain the separation between personal and business.
Many business owners accumulate amounts in their checking or low interest savings accounts. If this is you, then it is a great time to review your options and at the very least set up a high interest savings account. Alternatively, you can invest your funds in stocks, ETFs etc. by setting up a brokerage account. If you have a corporation, you can also invest excess corporation funds for which there are several options.
2. Review Customer Accounts and Inventory
This is a good time to thoroughly review amounts that customers owe you and write off amounts that you don’t think you will be able to recover. In addition to cleaning up your accounts receivable list , this will help reduce your taxes payable as the write off is reflected as a bad debt expense.
Designated amounts can also be submitted to a collection agency and in the event that you ultimately collect the amounts you can show it as a bad debt recovery. This also reduces stress levels as you don't have to see the names of frustrating customers when you are reviewing the list in the new year.
For self employed people who are unincorporated or have corporate year ends at December 31st, you should do an inventory count should at the year end. Once the count is complete, all items in inventory should be reviewed and older and/or obsolescent items should either be written off or reduced to the amount that you think they are worth. The write-down of inventory is reflected as an expense in the cost of goods sold and correspondingly reduces your tax liability.
3. Donate to Charity
It is a great time of year to be generous as, not only do you feel like you’ve done something good, you are also entitled to a tax deduction. Keep in mind that only donations to Canadian charities are tax deductible unless you have income from US sources which then allows you to deduct donations to US charities up to the amount of US based income you have earned. While the deadline to contribute for the current year is December 31st, donations can be carried forward up to 5 years.
4. Review Your Fixed Assets
Take a look at your business fixed assets i.e. computers, furniture, equipment etc and sell or dispose of anything that is reflected on your books but you are no longer using (do you really need that 5 year old phone?). If you dispose of it for less than the depreciated value , you might be able to claim a loss. And less clutter can go a long way to improving productivity.
5. Review Your Credit Card Balances
Many business owners don’t pay their monthly credit card balances simply because they don’t pay attention to the due date. Cash flow permitting, this is the perfect time to pay down your credit cards, thereby reducing completely unnecessary interest paid on outstanding balances.
If you are not able to pay down your credit cards on a monthly basis, it is also a good time to speak to your bank about getting a line of credit. Interest rates on a line of credit are usually significantly lower than credit card interest (especially as interest rates are going down) and can lead to substantial savings.
It is also be a good time to set up automatic transfers and/or monthly reminders in your calendar to ensure that you pay as much of your credit cards as possible every month to avoid the high expense of credit card interest.
6. Pay Bonuses
The year end is a natural time to decide on bonuses for you and your employees. For those with December 31st year ends, paying bonuses is a great way to reduce your taxable income, rather than deferring them to the New Year. (And it makes for happy employees). You can “accrue” a bonus at December 31st, which can then be paid up to 3 months after the year end. This means that the business enjoys the tax deduction in the current year, while the employee only has to report the income next year.
Also, if the net income of your business exceeds $500,000, you should consider paying yourself or family members (who are employed in the business) a bonus for the excess amount. This will allow you to take advantage of the small business deduction that applies to Canadian Corporations with net income less than $500,000.
7. Invest in Large Purchases or Supplies
If you have excess cash and are contemplating a new computer or some furniture for your office or tools or supplies in the near future, it might make sense to purchase it before the new year. This allows you to claim CCA (depreciation) on the computer or furniture or simply expense the purchases in the current year thereby reducing taxes payable (for something you were going to buy anyway).
This post on the benefits of buying computer hardware or other fixed assets before the year end explains it in greater detail.
8. Do your Accounting
Many small business owners are simply too busy or find the process of accumulating receipts and itemizing them extremely tedious. This is however the best time of year to actually take the time to do your accounting since there is still a comfortable distance to tax time.
Ideally, you should set up a separate accounting folder , on your computer, where you can save/scan all your invoices, bills, receipts etc. (this fujitsu scanner is excellent and has allowed me to advance towards my goal of a paperless office)
Once you have saved your receipts, they can be organized by category eg. telephone, insurance, gas, food etc. or alphabetically or even by month.
Also ensure that you have all your business bank statements for the year.
Accounting software goes a long way to easing the pain of filing and accounting (while saving hours) by allowing download of bank transactions, creation and email of invoices to customers and saving of receipts etc directly within the software.
Alternatively, you can use a spreadsheet to do your accounting.
9. Analyze Your Financial Statements and Budget
Your financial statements are your report card for your business and let you know how you have done. These typically include your profit and loss and balance sheet.
To analyze your financial statements , you can look at how much you sold, and how much it costs you to sell it , also know as gross margins.
It is a great time to see if you are charging your clients or customers enough (or possibly too much?) and plan to implement pricing changes, which customers expect at this time of year. Sometimes even a small increase, indexed to inflation, can go a long way in increasing your bottom line.
You should also review your other expenses to see if you are spending too much relative to your revenues and potentially take this time to see if another cell phone provider will give you lower rates or if you can get a better deal with your insurance provider or if your bank has a cheaper plan better serves your needs. Service providers will often reduce rates if you imply that you are planning to leave them for a competitor.
Once everything is order, you should start planning for next year by preparing a small business budget which will allow you to assess your cash flow requirements and estimate your profitability.
As we invariably wonder where the year went, and gear up for the holidays, this is a great time to organize your business finances, reflect upon (and pat yourself on the back for) your accomplishments, understand your business mistakes so that you can avoid them in the future and prepare for next year.
10. Invest in RRSPs/FHSAs and/Or TFSAs
If you have accumulated some savings, this is a great time to invest them in one of these tax saving vehicles.
RRSP (Registered Retirement Savings Plan): Contributions reduce your taxable income, making them a great choice especially if you're in a higher tax bracket as the deduction is based on your top tax rate. Contributions made before the RRSP deadline of March 1st can also boost your tax refund, which you can then reinvest (or take a nice vacation).
FHSA (First Home Savings Account): A great tax savings vehicle for first-time homebuyers, this combines the tax benefits of an RRSP with the flexibility of a TFSA. Contributions are tax-deductible, and withdrawals (including investment growth) are tax-free when used for a qualifying home purchase.
TFSA (Tax-Free Savings Account): Although there’s no tax deduction for contributions, the investment earnings in a TFSA account grow tax-free. . These are great for saving towards medium- or long-term goals or as an emergency fund.
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