Planning Ahead for your Small Business.

Getting a head start on taxes for next year can prevent unnecessary stress down the road

We all prefer to do things that we enjoy. For many small businesses, accounting tasks do not fall anywhere near the concept of pleasurable and are often pushed to the bottom of the pile. Such avoidance tactics can backfire because eventually there will be some tax return or remittance deadline forcing the completion of these accounting duties. This pressure to 'just get it finished' can cause important information to be overlooked or ignored because it would take too much time to back track and obtain it. This approach can result in the loss of valuable dollars by missing out on tax deductions and credits to which a business is entitled. While there's not a lot that can be done to increase the fun factor of bookkeeping and accounting duties, when a proactive approach is taken it can make them a lot less overwhelming. So just keep in mind -- a little preparation can reduce stress and save you money!

While time may not be on your side for the 2000 tax year, here are some tips that should assist you in ensuring that you collect the data you need, so when the first blooms of spring arrive next year, you are relaxed and ready:

Getting organized

To save money on accounting fees you should be organized. This means having your 'shoebox' cleaned up before you get to your accountant's office. If this is more than you can face, you may want to hire a bookkeeper, who bills at a lower hourly rate, to get you up to date. Regular bookkeeping keeps you informed on how your company is doing and shows you your bottom line whenever you want to see it. This information allows you to make focused and accurate management decisions that are critical for the success and growth of your company.

There are many deduction opportunities if you know what records you need to keep to qualify. Here are some things to watch for: Expenses. Any expenses that are paid cash with no receipt can still be deducted as long as you keep a logbook. Examples of these are meter parking, car washes and payphones. You must state the date of these expenses, the amount and the business-related reason that this expense was incurred.

Travel. When you use your car for work it is critical you track your mileage for business use. Be sure to note the destination and total mileage for each trip in your car expense logbook. Along with the logbook should be all receipts for gas, insurance and maintenance. If these receipts are not retained you could be disallowed the total expense and that could mean a lot of dollars out of your pocket.

Credit cards. To write off any business expenses that are paid by a credit card, you must have the original credit card slip with your signature on it. It's a good idea to jot down on that slip the reason for that expense. If the charge is for meals, you can only deduct 50% and therefore only take in 50% of the GST for the company portion.

Advertising and marketing. Be sure to keep all invoices and expenses pertaining to advertising and marketing your business. These expenses are 100% deductible.

There is often a lot of confusion at tax time for sole proprietors because of the overlap of personal and professional expenses. Here are a few pointers to help clarify these tax issues:

Location. If a business is run out of the home, or if a home office is maintained, many of the related expenses are deductible. A percentage of the expenses relating to mortgage interest, property taxes and house insurance are deductible. Utilities (except phone expenses) are also deductible. To determine the percentage, calculate the square footage of your home and space used for the office. Divide the office footage by the home footage and multiply by one hundred. This will show the deductible percentage of these expenses.

Other expenditures. If the following expenditures are made by December 31, 2001 they will be eligible for 2001 tax deductions: moving expenses, child care expenses, safety deposit box fees, charitable donations, political contributions, professional association membership and medical expenses.

RRSPs. Registered Retirement Savings Plan (RRSP) contribution amounts are noted on your personal income tax return assessment notices. Be sure to check this before you top up your RRSP, as you don't want to contribute more than you are allowed. Consider contributing to a spousal RRSP to achieve income splitting in the future.

RRIFs. Persons turning age 69 in 2001 must mature their RRSP into cash, an annuity or Registered Retirement Income Fund (RRIF) by December 31, 2001. Certain 2001 excess contributions may be deducted in the year 2002 if contribution room is available.

Salary. If you own a business, consider paying a reasonable salary to family

members for their services rendered to the business.

Other payments. Ensure all alimony or maintenance payments were made by December 31, 2001 so they can be deductible in 2001. Individuals may claim a non-refundable federal credit of 17% on the interest portion of student loan payments made in 2001 for the 2001 tax year.

Health and dental. Health and dental premiums are also eligible deductions for self-employed individuals, as long as the self-employment income is the primary source of income and any income from other sources does not exceed $10,000.

It makes good business sense to start preparing for your tax return well before the deadline. So start organizing your records now and make an appointment to meet with a bookkeeper or accountant if you need assistance.

Kelly Campbell, CMA, is the founder and a principal of Campbell & Associates. Certified Management Accountants & Strategic Growth Consultants.