How to Save Money for your Small Business

By: James Byrne

Not long ago, anyone could take advantage of income splitting to lower their taxes. But attribution rules have closed a lot of loopholes. However, as a business owner, you may still be able to use this technique, says James Byrne, Director of the Small Business Consumer Centre.

Let's say you earn a net income of $40,000, after all deductions. Your spouse has a part-time job bringing in a net of $10,000 each year. For ease of multiplication, let's say you're taxed at 40 percent, your spouse at 25 percent. So your combined taxes are: $18,500 ($16,000 for you and $2,500 for your spouse).

To change this, hire your spouse to do some work for the business. If you pay $15,000 for this work, that money comes off your income and your spouse pays the tax on it.

Now, you and your spouse earn a net of $25,000. You each pay $6250 for a total of $12,500, or a $6000 tax saving. (And you're getting valuable help in your business.)

Follow these tips, says Byrne.

&bull Keep an eye on the marginal tax rate. Paying enough to bump your spouse into a higher tax bracket is not effective.

&bull Keep good records. Draw up a job description and track hours.

&bull Pay a reasonable wage. Paying your kid $100 an hour to sweep up the shop will raise eyebrows. If you're not sure what's reasonable, talk to your accountant or local tax office.

Would you like to receive money to launch and grow your own business too? There are monies available now for qualified existing & start-up small businesses. Visit The Small Business Funding Centre for more information.

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