As we look forward to Spring and a fresh, stronger economic year, the last thing many business owners want to face is the task of preparing for their annual tax return. When left to the last minute, the need and 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. Such a reactive approach can result in the loss of valuable dollars by missing out on tax deductions and credits for which a business is entitled. By starting early you will see that a little preparation can reduce stress and may even save you money!

As you begin to get into 'a tax time frame of mind', here are some tips that may assist you in considering the pertinent tax factors, both old and new, so that you collect the data you need:

In order to save money on accounting fees you should be organized. That means having your 'shoebox' cleaned up before you get to your accountant's office. If this is more than you 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 in order to qualify. Here are some things to watch for:

Any expenses that are paid cash with no receipt can still be deducted as long as you keep a log book. Examples of these are meter parking, car washes, pay telephone. You must state the date of these expenses, the amount and the business related reason that this expense was incurred.

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.

If you are an employee and your employer requires you to use your vehicle for work remember to get a T2200 from your employer for this expense on your personal tax return.

In order 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 remember you can only deduct fifty percent and therefore only take in fifty percent of the GST for the company portion.

Be sure to keep all invoices and expenses pertaining to advertising and marketing your business. These expenses are one hundred percent 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:

If your 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.

Once again if you are an employee and your employer requires you to work out of the home, you may be entitled to a home office expense. However, there are limitations to this expense if you are an employee and you need a T2200 signed by your employer stating that you are required to work from home.

If the following expenditures have been made by December 31, 2001 they will be eligible for 2001 tax deductions or non-refundable tax credits : moving expenses, child care expenses, safety deposit box fees, charitable donations, political contributions, professional association membership and medical expenses. Be sure to ask your accountant about what type of medical expenses are allowed so you don't miss any of these non-refundable taxes credits.

If you own a business, consider paying a reasonable salary to family members for their services rendered to the business.

Ensure all alimony or maintenance payments were made by December 31,2001 in order for them to be deductible in 2001.

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.

Here are some highlights of the 2002 Federal Budget:

Currently, the GST credit is paid quarterly, beginning each July, based on family income and circumstances at the end of the previous calendar year. Commencing in July 2002, the GST credit entitlement for a quarter will be based on the family's circumstances at the end of the preceding quarter.

There is now an income tax deduction for a portion of the cost of new tools acquired by apprentice vehicle mechanics after 2001. The amount of the deduction will be the total cost of new tools acquired in the year, less the greater of $1,000 and 5 percent of the individual's apprenticeship income for the year. The apprentice will also be eligible for a rebate of the GST/HST paid on the portion of the purchase price of the new tools that is deducted.

Prior to this year there has been no deduction available for tuition paid for primary or secondary level education. As of this year individuals will be able to deduct the amount of certain tuition assistance received for adult primary or secondary level education that has been included in their income. The deduction will apply to assistance received after 1996.

Historically, the education tax credit of 400 dollars per month of full-time study and 120 dollars per month of part-time study has not been eligible to be claimed by students who received financial assistance for post-secondary education under government training programs. For 2002 and subsequent years, there will be extended access to the education tax credit to students who receive certain taxable assistance for post-secondary education.

Until now, corporations have been required to make monthly tax installments. In addition, corporations were required to make their final payment of taxes owing for the year two or three months after the end of that year (the balance-due date). Now the government has stated that it will defer payment of the federal corporate tax installments for the months of January, February and March 2002 for a period of at least six months, without payment of interest or penalties. A Canadian resident corporation will qualify for this deferral if the combined taxable capital employed in Canada of the corporation and its associated corporations is not more than $15 million in the previous taxation year. To ensure that all small corporations effectively benefit from at least a six month deferral of their January, February and March 2002 installments, the balance due date will be extended where it would have otherwise occurred before a deferred installment payment date. The provincial income tax installments will also be deferred for eligible corporations for provinces that have a corporate tax collection agreement with the federal government.

As all strategic managers know a little proactive planning goes a long way - even at tax time! The lengthening daylight hours means that tax time is getting nearer, so now is a good time to turn your attention to preparing for your tax return. Be sure to start organizing your records now and make an appointment to meet with a bookkeeper or accountant if you need assistance. That way, come tax time you will be prepared, less stressed and maybe even have a bit more money in your pocket than you anticipated.

Courtesy of
Kelly Melanson

Kelly Melanson,CMA, is the founder and a principal of Melanson & Associate/ Certified Management Accountant & Strategic Growth Consultants. She is also past treasurer of the Scugog Chamber of
Commerce, past president of the Durham Home and Small Business Association, past director of the Durham Region Local Training Board and currently a director/treasurer for the Business Advisory Centre of Durham.