Keeping your tax files fit for the coming 12 months not only cuts frustration in another year, it likely will cut your taxes.

Here are some things to consider in the next few months:

1. Make a plan - At minimum your plan should summarize total revenue, collections by client and expenses from the past year to support projections for 2007. Update it quarterly.

   While you’re at it, consider major expenses you expect and time and budget those purchases to your advantage.

2. Keep better records - Probably the biggest single thing small-business people can do is keep good records. Poor record-keeping increases your taxes.

   It’s less likely that things get overlooked if they’re organized.

   Try this: Buy 12 envelopes and label them by the month. Put records of all deductible expenses each month inside the appropriate envelope; on the back, write a list of contents as you go and total each month’s expenses. (Or you can reach the same result with a paper accordion file.) At the end of the year, you’ll have a pretty good, organized set of records.



3. What’s your corporate structure? - Consider whether to change your business’s corporate structure. There may be tax benefits, for example, to switching from a C-Corporation to an S-Corporation. For most small businesses, the changes must be made by March 15 to affect this year’s taxes.
4. Set up retirement plans - If you don’t have a retirement plan in place, or want to make a change, do it now. Some plans take several months to establish, and an earlier start allows more savings - especially with automatic payroll deductions.

   A recent study reporting that just half of workers have socked away more than $42,000 for retirement by the time they reach age 40.

5. Do you work at home? - If you qualify - and there are plenty of restrictions - setting aside home office space may enable you to depreciate a portion of your home and also to deduct normal operational costs, such as mortgage or rent, property taxes, utilities and maintenance or repair costs. The sooner you set up your office, the longer you can claim those deductions.
6. Put your teens to work - Instead of paying them an allowance, pay older children to work for your business; their compensation will be a deduction for the business, and their tax rates likely are lower than yours.

   Sole proprietors don’t pay Social Security or Federal Unemployment Taxes on wages paid to their own children under age 18, but those wages must be reasonable for the child’s work.

7. Schedule a tax review - If you have a tax adviser, open your business calendar now and write yourself a reminder in about October to schedule a meeting next fall. A brief conference late in the year will result in a fee but may save taxes and time, accountants said.

thecolumbian.com