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Five year-end tax tips for small business owners

December 30, 2010  By Amanda Ryder

Dec. 30, 2010 – To help Canadian small business owners cope during tax season, BMO Bank of Montreal has
compiled a list of simple year-end tips and strategies that can pay

Dec. 30, 2010 – To help Canadian small business owners cope during tax season, BMO has
compiled a list of simple year-end tips and strategies that can pay

“While the year started off with a few economic storm clouds on the
horizon, many small business owners are now expressing a growing
optimism and an increased level of confidence about their ability to
finish out 2010 strongly,” says Cathy Pin, Vice President Commercial
Banking, BMO Bank of Montreal.


For small business owners in Canada (most commonly a sole proprietorship
or partnership), there are a number of year-end strategies that can be
applied to reduce the amount of income tax payable, including:

1. Do a 'financial check-up': A business banking
adviser, accountant, and investment adviser can help owners make sure
they have a clear understanding of their current financial situation.
These professionals can also help develop or adjust existing plans based
on new needs or changing circumstances.

2. Defer income: Depending on a number of factors (e.g.
future tax rates, projected profit or loss for 2010, cash flow), small
business owners may be able to reduce the current taxes they will be
paying by deferring some of the income they expect to receive in
December, instead into January 2011.

3. Gather business receipts and increase expenses: Maximize
income tax deductions by ensuring all allowable receipts for
business-related expenses (e.g. gas, stamps, customer lunches, coffee
for the office) are kept and accounted for. Over the course of a year,
those receipts for the little things can add up. Business owners should
consult the guidelines available from the Canada Revenue Agency, or
speak to their professional tax adviser about eligible business

If it makes sense for their current business situation, businesses can
also increase some expenditures now on things they plan to need early in
2011, in order to maximize 2010 deductions. For example, small business
owners can consider accelerating the purchase of new equipment or other
depreciable assets before the end of the year to potentially benefit
from a claim for tax depreciation in the current year.

4. Consider inventory write-offs: A drop in the value
of inventory may also provide an opportunity for an additional income
tax deduction for the current year. It is important to speak to a
banking adviser and your accountant about the tax rules that apply to
your particular situation.

5. Set-up a new RRSP or make that maximum annual RRSP contribution: For
unincorporated small business owners, income earned by the business
becomes personal income when filing taxes using the T1 form. However,
many small business owners fail to take full advantage of the best
income tax deduction available to Canadians – the Registered Retirement
Savings Plan (RRSP).

RRSP contributions are deducted from annual income, thereby lowering
income tax payable at the individual's marginal tax rate. Now is a great
time to set-up a new RRSP or make a contribution to an existing plan
for 2010 to benefit from the tax-deferred growth right away. The process
is simple, quick and can be done at any bank branch.

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