Small businesses can take many shapes and forms. The shape you choose affects the tax you pay. Sole proprietors and partners pay personal tax rates on all profits which are much higher than the corporate rate. You might benefit from incorporating if:

• You will not take all the profits out of the company.
• You want to defer paying tax on profits.
• You want to reinvest profits into your business for growth.
• You are purchasing assets.
• There is a liability risk associated with the work you do.

Educate yourself on what business expenses can be deducted for tax purposes and develop the habit of saving all your receipts for those items. Then keep them organized to save on accounting fees.

There are many ways to organize your financial data. Which you choose doesn't matter as much as ensuring that the system gathers and reports the information you need in an efficient manner. Your accountant can recommend software and possibly a bookkeeper to help. And, if you're using a computer, back it up regularly. You don't need the headache of recreating months' worth of data come tax time.

Missing eligible business expenses is a common problem and the reason that some companies pay too much tax. As a general rule, all products and services that are acquired exclusively for the running of your business are valid tax dedications. These include:

• Advertising and promotional costs.
• Office supplies.
• Delivery expenses.
• Office cleaning, equipment repairs and maintenance.
• Office rent or mortgage payments.
• Interest on business loans.
• Business insurance and licenses.
• Life insurance premiums if the insurance secures a loan and the beneficiary is the lender or your company.
• Business travel expenses.
• Meals & entertainment - 50% of the total spent.
• Conventions - 2 per year and only 50% of meals and entertainment as per above.
• Vehicle expenses. For a personal vehicle, you must keep a log of your km for business purposes. A corporation that owns a vehicle that is used solely for the business can deduct all vehicle expenses.
• A receivable that is not paid becomes an expense in terms of a bad debt.
• Home office - if you use 10% of your home for an office, you can deduct 10% of your rent or mortgage, hydro bill, gas etc.
• Health and dental insurance premiums if:
  • Your business is incorporated and the business is your primary source of income.
  • You offer equivalent coverage to all permanent full time employees.
• Losses in the business can be applied against employment and other income if you are a sole proprietor.

What is deductible and the rate at which they are deductible can change. Keep abreast of this information with your accountant. Also, discuss any purchases you plan to make personally that could benefit your business as well. Your accountant may have suggestions as to the best way to make the purchase.

It can be tempting to grow your deductions and reduce your taxes by running a few thing through the business that are not really business expenses. This is called tax evasion. Tax avoidance is fine but tax evasion is a crime. Here are a few expenses that should not be deducted.

• Home expenses that are not part of your home office.
• Inventory taken for personal use.
• Traffic tickets or similar fines. Even if a vehicle is parked for company business, a ticket cannot be claimed.
• Professional fees for defending personal tickets.

What is deductible and the rate at which they are deductible can change. Keep abreast of this information with your accountant. Also, discuss any purchases you plan to make personally that could benefit your business as well. Your accountant may have suggestions as to the best way to make the purchase.

There is a difference between an expense and an asset such as equipment, a building or leasehold improvements. While you can deduct the full amount of an expense, you can only deduct a portion of an asset. For tax purposes, you get a Capital Cost Allowance (CCA) for the asset which allows you to deduct a portion of its value each year for a number of years as defined by the government. The CCA varies according to the item and can change with a new budget. Contact your accountant for current CCA information.

There are opportunities to reduce your tax simply by the way you choose to run your business. Ask your accountant about:

• Taking employees to an event rather than to dinner to increase your tax deduction.
• Hiring your spouse or children to split income and reduce taxes.
• Wearing a uniform which is tax deductible instead of regular work clothes which are not.
• Including home office expenses even if you don't work from home full time.
• Planning holidays around business trips.

Finally, keep more money in your pocket by staying on top of your taxes and other government responsibilities. Pay on time to avoid penalties and interest fees. Personal taxes are due April 30th and self-employed taxes are due June 15th. However, if you owe the government money, that money is due by the April 30th deadline.