Tax-smart in 2025: Make the most of deductions and credits

Tax season doesn’t have to be a headache. With a little planning and some smart strategies, you can shrink your tax bill and keep more money in your pocket. Here’s how to make the most of deductions and credits in 2025.

1. Claim everything you can 

One of the easiest ways to lower your taxable income? Write off your legitimate business expenses. Here are some common deductions you don’t want to miss:

• Home office expenses – If your primary place of business is your home, you may be able to deduct a portion of your rent or mortgage interest, utilities, insurance and property taxes. Just figure out what percentage of your home is used for business (e.g., one 150 sq ft room in a 1500 sq ft house = 10% of eligible expenses).
  
  
• Business use of your car – If you drive your personal vehicle for business, track your kilometres. You can deduct fuel, insurance, maintenance and parking, but only the portion that’s for business. Keep a log — trust us, the CRA loves a good mileage log.

Talk to one of our accountants if you’re unsure if you can use your car for business purposes. 

• Equipment and supplies – Laptops, office furniture, software subscriptions and even printer paper — if you need it for work, it’s deductible.
  
  
• Marketing and advertising – Running ads, managing your website or printing business cards? Deduct those expenses.
  
  
• Professional fees – Accountants, consultants, and legal services that help your business? All deductible. (Yes, even the fee you pay your accountant to help with taxes!)

For more on deductible business expenses, see our article, What business entertainment expenses are deductible?

2. Contribute to an RRSP and pay less tax

A Registered Retirement Savings Plan (RRSP) is one of the best ways to save on taxes. Every dollar you contribute reduces your taxable income, and depending on how much you contribute, it can make a big difference.

Say you make $60,000 and contribute $10,000 — your taxable income drops to $50,000, and you pay less tax. For 2024, you can contribute up to 18% of your earned income, up to a max of $30,780.

The beauty of the RRSP is that you pay no tax on the money you put in until you withdraw it, which makes it a great way to reduce your tax burden now while building a retirement fund for the future. If you didn’t max out your RRSP limit in the past, contributions can also be carried forward.

3. Use a TFSA for tax-free growth

A Tax-Free Savings Account (TFSA) doesn’t reduce your taxable income, but any income earned within the account grows tax-free, which means you won’t pay any taxes on interest, dividends or capital gains. Plus, you can withdraw the money at any time, without penalty.

The 2024 contribution limit is $6,500, and if you haven’t maxed out previous years, you may be able to contribute even more. A TFSA is an excellent option for business owners who want to save without adding to their taxable income.

To learn more about RRSPs and other tax-saving strategies, read our article on Planning and saving for retirement as a small business owner.

4. Split income to save on taxes

If your spouse helps out with your business, you can pay them a salary — as long as it’s reasonable for the work they do. This shifts income from your higher tax bracket to their lower one, reducing your household’s overall tax bill.

If your business is incorporated, you might also be able to issue dividends to family members, if they are shareholders and at least 25 years old. But watch out for Tax on Split Income (TOSI) rules — make sure it’s done right to avoid issues with the CRA.

For guidance on paying yourself and others from your business, see our article Dividends vs. salary: What’s the best way to pay yourself?

Note: Kiddie tax applies to children under 18 and is prorated for children 19 to 25.

5. Time your income and expenses

Tax planning is all about timing. Try to keep your income steady from year to year. If you have a year with significantly higher income, it could push you into a higher tax bracket. Instead, you could:

• Defer income – If possible, push invoices into 2025 if you expect your income to be lower that year.
• Accelerate expenses – Need new equipment? Buy it before year-end so you can write it off in 2024.

If you operate on a fiscal year instead of a calendar year, make sure you’re timing things right for maximum tax benefit.

6. Take advantage of tax credits

While deductions reduce your taxable income, tax credits directly reduce your tax bill. Here are a few credits to keep an eye on:

• Medical expenses – If they exceed 3% of your income, you can claim them.
  
  
• Charitable donations – Donations over $200 get a higher tax credit. You can carry forward unused donations for up to five years.
  
  
• First Home Savings Account (FHSA) – If you’re saving for a first home, this is a great option. Contributions are tax-deductible, and withdrawals for your first home are tax-free.

These credits can make a significant difference in lowering your overall tax bill. To dive deeper into tax-saving strategies, check out our Tax-savvy business owners: How to save big on taxes in 2024.

7. Stay organized (it’ll save you a headache later)

Messy records = missed deductions. Keeping everything organized will help you claim all the deductions and credits you're entitled to. Use tools like Dext or Hubdoc to snap receipts and accounting software to track your income and expenses. Other key tips:

• Separate personal and business finances – Use different bank accounts and credit cards.
  
  
• Digitize receipts – Paper receipts fade, and CRA audits can go back years.
  
  
• Track income and expenses in real time – Export bank transactions to Excel if needed, but staying on top of things year-round is key.
  
  

8. Plan for capital gains and losses

If you sell a business asset or investment, you'll need to be mindful of capital gains taxes:

• Spread out capital gains – If possible, sell assets over multiple years to avoid a big tax hit all at once.
  
  
• Offset gains with losses – If you have investments that are underperforming, selling them can help offset the taxes you owe on any gains.

For real estate or other capital-intensive business assets, it’s smart to strategize ahead of time to minimize the tax impact.

With the right planning, you can cut your tax bill and keep more of your profits. Stay on top of deductions, credits and smart tax strategies throughout the year — it’s worth it.

Need help sorting it all out? Talk to a True North accountant who knows small business inside and out. We specialize in helping small business owners maximize their deductions and simplify tax season.

Read more about Corporate and Personal Tax topics relevant to you and your small business.