If you’re a small business owner who’s just received a tax refund, you might see it as an unexpected bonus — a bit of extra cash that can be put to good use. Here are some ways you can invest that refund to boost your personal financial health and strengthen your business.
Pay off your high-interest debt
Use your refund to pay down credit card balances, loans or other high-interest debts. This can save you money on interest payments, boost your credit score and make it easier to secure financing in the future. Be sure to pay down personal debt first as business debt or debt incurred to earn income is tax deducted.
Dave Ramsey suggests the debt snowball route, where you first pay off your smallest debts. Clearing a debt can be exhilarating and may trigger a desire to feel that feeling again. Next, tackle your second smallest debt obligation, and hopefully, you will get addicted to it and start portioning more of your income to pay off debt.
Learn how to manage small business debt in our blog.
Pay your tax instalments
For GST number holders, sole proprietors and rental property owners, it's vital to keep up with your tax payments regularly to avoid penalties and unexpected costs, like the new CRA 10% interest rate. These timely payments can help prevent any unnecessary penalties.
Start or add to your emergency fund
If you don’t already have an emergency fund, your tax refund could help you start one. Aim for a reserve that covers three to six months of operating expenses and personal living costs. This safety net can be invaluable during sudden market changes and lean times.
Add to your RRSP or TFSA
Consider contributing to your retirement savings. Adding your refund to a retirement account like a Registered Retirement Savings Plan (RRSP) or Tax-Free Savings Account (TFSA) can prepare you for the future and offer immediate tax benefits, potentially lowering your taxes for next year.
Learn about planning and saving for retirement as a small business owner.
Invest in your stock portfolio
Investing in the stock market is the next step if your high-interest debts are under control and you have solid savings. Stocks, bonds, mutual funds or cryptocurrency can be a way to grow your refund over time.
Learn more about cryptocurrency in Canada.
Invest in yourself
Using your refund to fund education or professional development can be an excellent way to invest in yourself. Enhance your skills by attending a workshop, taking a course or obtaining a certification — it can open up new opportunities for business growth.
Here are some entrepreneur schools and classes that we recommend.
Invest in your kids
If you have kids, you can use your tax refund to boost their education funds. The cost of university is steadily rising, so the sooner you can start saving, the better. Making a Registered Education Savings Plan (RESP) one of the best investments you can make in your child’s future.
Prioritize your health
Investing in health and wellness can bring significant benefits to you personally and for your business. Consider a gym membership, new health equipment or wellness programs that are not covered by insurance.
Upgrade your business space
Use your refund to invest in your workspace, whether it’s to make your operations more efficient or to improve customer experience. You could upgrade with a new piece of equipment, a renovation or make aesthetic or energy-efficient upgrades to increase your property’s value.
Re-invest in your business
Use your tax refund as a springboard for growth. This might mean expanding marketing efforts, increasing inventory or funding a new product line. Each dollar spent wisely can help scale your business.
Support a cause
Donating to charity supports your community and can be financially beneficial. Charitable donations are often tax-deductible and can reduce your taxes for the coming year.
Learn how to donate responsibly in our blog.
Turning your tax refund into an investment in your future can be one of the smartest business moves you make this year. Make it count!
Our Chartered Professional Accountant (CPA) professionals are experts in the constantly evolving tax laws and regulations. We can help you with deductions, write-offs, expenses, tax returns, GST filing, etc.
Read more about Personal Tax topics relevant to you and your small business. Don’t hesitate to reach out — we’re here to help make tax season a little brighter for you.
