Get Ahead of Tax Season: 5 Proactive Steps for Business Owners

Tax season. For small business owners – no matter the type or size of company – it’s often a stressful time of year. With extra strain and extra paperwork, tax season can be a grating distraction from running and building the business itself.

The good news is, tax season doesn’t have to be overwhelming – a little preparation can go a long way. These five tips will help you get organized, file with confidence and get back to doing what you do best.

In this article, “sole proprietor” and “self-employed” refer to unincorporated business owners, while “incorporated” refers to businesses operating through a corporation.

1. Know your business filing fundamentals

Before you start thinking about deductions or write-offs, you need to have your tax filing basics locked down. This means deadlines, reporting requirements and payroll obligations – all non-negotiable elements to filing your taxes.

Know your key dates

Corporations:

• Corporate tax returns are due six months after your fiscal year-end

• Any taxes owed are usually due two to three months after year-end

Unincorporated Businesses:

• You have until June 15 to file your personal tax return (or the next business day if it falls on a weekend)

• But if you owe money, payment is still due by April 30

If you’re self-employed, aim to prepare your return well before April 30 so you know whether you have a balance owing – and how much.

Get more tax filing basics for freelancers, sole proprietors and self-employed

Know what business income you need to report to the CRA

You must report all business income earned in the previous year. Even if your business earned no revenue, you still need to file.

Don’t forget CPP and EI

Many small business owners, whether incorporated, sole proprietor or self-employed, are surprised by Canada Pension Plan (CPP) and Employment Insurance (EI) contributions. The rules for each depend on how your business is structured – and, if you’re incorporated, how you pay yourself.

Here’s what you need to know:

CPP/QPP contributions

The CPP/QPP contribution rate is 9.9% of pensionable earnings, up to an annual maximum. This rate applies whether you’re incorporated or a sole proprietor – but how you pay it differs depending on your business structure.

If you’re a sole proprietor or self-employed

• CPP/QPP contributions are mandatory

• You’re considered both the employer and the employee

• You pay the full 9.9% yourself, up to the maximum

To help you estimate your CPP/QPP obligation, the maximum contribution for self-employed owners in 2025 was $8,860.20 and for 2026 is $9,292.90

If you’re incorporated

CPP/QPP depends on how you take income from your corporation.

• If you pay yourself a salary, CPP/QPP contributions apply – you pay the employee portion, and your corporation pays the employer portion

• If you pay yourself dividends, there are no CPP/QPP contributions. While this means you’re not paying out these funds today, it also means you’re not building CPP/QPP entitlement on that income.

EI premiums

EI works differently than CPP/QPP. Whether you’re obligated to deduct and remit EI depends first on whether you have employees, and then on whether you’re paying yourself as the owner.

If you have employees (incorporated or sole proprietor)

• You must deduct EI premiums from employees’ pay and contribute 1.63x the employee rate, up to $64,200 of insurable earnings.

If you do not have employees (incorporated or sole proprietor)

• EI is not required; however, you can voluntarily opt into EI to access special benefits such as maternity and parental benefits, sickness benefits and caregiving benefits. Regular EI benefits for loss of business income are typically not available.

Tip! Start early. Tax deadlines have a way of sneaking up, and rushing at the last minute can lead to mistakes.

2. What deductions and tax credits are available for Canadian businesses?

One of the upsides of being a business owner – whether incorporated or self-employed – is that the tax system recognizes the costs that come with generating an income.

Understanding your deductions allows you to approach taxes more strategically. Beyond something you “have to do” once a year, you can look at taxes as part of managing your cash flow, planning investments and making informed decisions throughout the year.

Discover top tax deductions for freelancers, side-hustlers, and self-employed

First: deductions versus credits

Some business owners think of tax deductions and tax credits interchangeably. But they’re in fact very different. Tax deductions reduce your taxable income, while tax credits reduce your actual tax bill.

For example, if you earn $100,000 and claim a $10,000 deduction, you’re taxed on $90,000.  If you earn a $1,000 tax credit, your taxes owing drops by $1,000 – dollar for dollar.

How deductions work

Tax deductions, also called write-offs, are one way business owners can bring down the amount of tax they pay. Throughout the year, you keep track of your business expenses. Come tax time, you claim these expenses on your tax return. These deductions count against your total income and, in turn, reduce it

Common business deductions

Here are some of the most common and straightforward deductions:

• Accounting and tax software

• Advertising, website and marketing fees

• Business supplies

• Capital purchases and depreciation

• Home office and home office-related expenses, such as utilities, rent or property taxes

• Meals, entertainment and travel

• Transportation, including your car

• Bank charges — This means the cost of your business bank account can be written off against your income

What typically doesn’t count

Just because you spent money as a business owner, it doesn’t mean the expense is tax-deductible. Common no’s include:

• Clothing

• Dry cleaning

• Parking tickets — even if incurred while at a business meeting

• Gym memberships

• Commuting costs

What’s new in 2025

• SR&ED (Scientific Research & Experimental Development) enhancements:

  Canadian-Controlled Private Corporations (CCPCs) may qualify for an enhanced 35% SR&ED credit on up to $6 million in eligible research and development (R&D) spending. These credits primarily apply to incorporated businesses and are generally more limited for unincorporated owners.

• Immediate expensing for manufacturing/processing buildings:

  Small businesses, whether incorporated or self-employed, building eligible manufacturing/processing facilities in 2025 can claim a 100% first-year deduction, accelerating tax savings on capital investments.

Tip! Separate your business and personal expenses with a business bank account and credit card. It will make tracking your business deductions so much easier and save time at tax season.

3. Keep backups and records

Every year, the CRA reviews a portion of tax returns. In case they come to you with questions or proof of expenses, it’s important to have the backup – and save it for six years after you file.

Save your receipts

You need itemized receipts – not just credit card statements – as you’ll need to show details of the expense. If you work from home, save your household bills to support home office claims

Organize your invoices

Having all your invoices in one place for the year can help you add up your income and report it accurately. You may also need to show proof of income should the CRA request it.

Store everything digitally

When you get a receipt for a business expense, take a photo of it and store it digitally — whether within an accounting app, a separate album on your phone or your computer. As many receipts come electronically (i.e., for subscriptions, ride-share apps, and office supplies ordered online), storing everything digitally in one place can seriously simplify your expenses.

4. Use invoicing and accounting software

If paperwork isn’t your favourite part of running a business, you’re not alone. The goal here isn’t to turn you into an accountant – it’s to make the admin side of your business take up less time.

The right invoicing and accounting software can do a lot of the heavy lifting for you, so you’re not scrambling when tax season rolls around.

A strong platform designed for small businesses can:

• Track invoices, customers and balances in one place

• Sync with your business bank account

• Store receipts digitally

• Run reports for income, expenses and payroll at tax time

• Reduce errors and save you serious time!

Tip! If you’re an RBC client, you can take advantage of exclusive offers with platforms like Xero, making it even easier to get started.

5. Set enough aside

When you’re a sole proprietor – or when you’re incorporated and earning income without payroll deductions – the money you take from your business is effectively gross income – no taxes have been withheld, so it’s your responsibility to set aside and pay income taxes directly to the government.

To avoid any missteps (or to cover yourself in case you miscalculate), it’s a good idea to be conservative with the percentage you set aside whenever you collect a payment.

Tip! Set up a separate business banking account and automatically allocate 25-30% of what you earn for your tax liability (though it’s worth checking this figure against your tax bracket to ensure you’re putting enough aside). 

Bottomline

Tax season is part of running a business – but last-minute stress doesn’t have to be. With the right preparation and systems in place, you can approach filing with confidence and stay focused on growing your business.