One way to maximize your business profits is by reducing your
taxes. Frequently, income and other taxes could be lowered
significantly if only the taxpayer were willing to plan ahead.
By taking some simple steps to rearrange your affairs, you could
save a fortune!
1. Are You Splitting Your Business Income?
You may pay reasonable salaries to spouse or children through
your incorporated or unincorporated business. If you are not
doing so, you may be missing out on some real tax savings.
In the Canadian Federal Budget of February 16, 1999, measures
were introduced to discourage income splitting with minor
children through family trusts. However, these measures do not
apply to paying reasonable wages to family members. Thus, this
may be one of the last ways of legally splitting income left for
the small business person with minor children. Obviously, the
amounts paid must bear some relationship to the work performed.
Of course, all required payroll taxes should be remitted and
proper records need to be maintained.
Why not rearrange your affairs so that family members with
little or no income can perform duties for and be paid by your
business? Then, they can contribute out of their own income
towards the operation of the household. In this way, little or
no tax will be paid by your dependants and you will have
successfully shifted taxable income out of your hands.
2. Should You Register For The Goods And Services Tax?
Even if your business grosses less than $30,000.00 per year in
taxable sales, you may still benefit by registering your
business to collect the Goods and Services Tax (G.S.T.). If you
are not doing so, you may be missing out on some real tax
savings.
For example, you will be paying G.S.T. on many of your business
expenses. If not registered for G.S.T., you must absorb this
cost. If registered, you may deduct the G.S.T. paid on such
business expenses (input tax credits) from the tax collected.
Many business persons expect to pay G.S.T. and it doesn't really
cost them anything since they deduct such amounts as input tax
credits from the G.S.T. they collect from their customers.
In some cases, the quick method of calculating G.S.T. may
actually allow you to retain more of the G.S.T. collected than
you would have just claiming the G.S.T. actually paid by you.
A factor to consider also: If you are not registered for G.S.T.
in Canada, you are telling your clients that you do under
$30,000.00 per year in taxable sales or that you cheat. Is this
the image you want your clients to have?
3. Could You Benefit From Incorporating Your Business?
Although incorporating your business may result in increased
accounting and legal fees (for setup, extra tax returns, and
annual minutes), the advantages of incorporation may justify
this added expense. Not only will you enjoy limited liability by
incorporating, but you may reap significant tax savings as well.
Corporations are often subject to lower tax rates on small
business income. In Canada, sales of shares of qualifying small
business corporations can obtain a lifetime $500,000.00 capital
gains exemption. Certain tax incentives and government programs
are only available to incorporated entities. Additionally,
corporations can be used for income-splitting and estate,
retirement, and succession planning objectives.
4. Do You Engage in Tax Planning Year-Round?
Some people only worry about their taxes during tax season.
However, you will save a fortune in taxes, legally, if you make
tax planning your year-round concern.
Can you make some changes to turn your hobby into a moneymaking
business? Can you use that extra room in your house as a home
office for your business? Can you arrange to use your car more
for business purposes and have you documented your business use
mileage? Can you arrange for more of your entertainment expenses
to be business related and have you listed the business purpose
on the back of each receipt?
Do you make business and personal purchases, investments, and
other expenditures with tax savings in mind. Do you document
your expenses well so that you they would survive a tax audit?
Whenever you are faced with a business or personal financial
decision, do you consider the tax consequences? Make year-round
tax planning part of your business management mindset and, thus,
enjoy maximum tax savings. Yes, by rearranging your affairs to
account for tax implications, you will save a fortune in taxes.
About the author:
J. Stephen Pope, President of Pope Consulting Inc.,
http://www.popeconsultinginc.com/ has been helping clients to
earn maximum business profits for over twenty years.
For more valuable Work at Home Business Ideas, visit:
http://www.yenommarketinginc.com/
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