is a major challenge for many small businesses. We are good
at our core business, but may not know much about the bookkeeping
side, or don't enjoy keeping the books, or don't have time to keep
you are keeping your business' books yourself, or are hiring a
bookkeeper to take care of them, here are some tips to help tame
your paper monster, and save you some money, too.
Every week, take 15 minutes to file your receipts. This can
be a simple as stuffing them all into one file, or sorting them by
category. Do what works best for you, but do it.
Having all your receipts in one place means that you won't lose
them. A little bit of effort over the year will ensure that
tax time is not a stressful time and you get all your deductions.
If your home phone is also your business phone, take the time each
month to go through your phone bill with a highlighter and
highlight all of your long distance business calls.
You get to write off a portion of your basic phone charges if you
work from home, but this is a small amount, even over the course
of a year. Your long distance charges must be separated out.
Highlight them and make an abbreviated note about who the call is
to, if it is not obvious. Many small businesses lose this as
a business write off because at the end of the year they can't
remember which calls were for business, and your bookkeeper won't
write off any of them, because there is no way for her to tell
which calls were for business.
Take the time to staple receipts and bills that are more than one
page long together. This will save you and your bookkeeper
time at the end of the year.
Keep a file pouch in your vehicle or in your briefcase for
receipts. Throw your receipts in the pouch as you get them.
Don't stuff them into your pockets, purse, console, briefcase, or
glove compartment. When it comes time to do your books,
finding your receipts should not be a treasure hunt.
Know when your bookkeeping deadlines are.
If you have a GST number, you have to file quarterly.
Generally the quarters are:
Jan/Feb/March - file by end of April;
Apr/May/June - file by end of July;
July/Aug/Sept - file by end of October;
Oct/Nov/Dec - file by end of January.
If you have a payroll, remittance taxes have to be paid by the
15th of the following month. E.g. Feb 15 for the month of
January, March 15 for the month of February, etc.
Taxes must be filed annually, at your year end. Most
commonly, year end coincides with the calendar year. You
have four months to file your taxes, usually due at the end of
April, but if CCRA owes you, or
you have a nil balance due, a small business operator is allowed
to file as late as June 15 without penalty. If you owe, you
would be charged interest from April 30th, but no other penalty
for filing late.
these deadlines seriously, because the Canada Customs and Revenue
Agency does. Ignorance is not an excuse.
Do some tax planning. Don't do your taxes, find out you owe
$10k and have no way to pay. You need to be working on a tax
plan throughout the year. Consult a profession if you need
to. If you pay more than $2000 per year in taxes for two out
of the last three years, Canada Customs and Revenue Agency (CCRA)
will ask you to remit taxes quarterly.
Decide how frequently you need financial information. A
really small business may get away with doing books at year end
only, but I don't recommend it. Many small businesses are
forced to do their books quarterly because of GST. If your
business is still small enough that you don't have a GST number,
do your books at least twice a year. This will show you
where your money is going, and if you are missing any receipts.
Larger businesses should be doing their books on an ongoing basis,
with monthly financial statements.
What receipts should you be collecting? Every time you spend
money, ask yourself "is this related to my business?".
keep your stationary receipts, software, computer, tools,
maintenance and repairs, office rent (if you rent a space from
someone else, you can't rent from yourself unless you are
incorporated). If you work from your own space, you are
entitled to deduct a percentage of your mortgage interest or rent
based on the percentage of space dedicated to your business (if
you have a desk in your kitchen, you cannot use this deduction
because it is a shared space), printing of business cards, forms,
business license, business tax, business fees,
building, vehicle, WCB, disability.
and entertainment: you can write off 50% of your
meals and entertainment if you are with someone related to your
business (clients or potential clients, suppliers, or employees) -
write down the names of the people that you entertained and why,
and don't forget to write in the tip amount. Make sure that
the amount is reasonable in relation to your overall income.
If your entertainment expenses are a huge percentage of your gross
income, a red flag could be raised at CCRA, and you could get
audited. This is a deduction that is abused, and if you are
audited, be prepared to have the names on your receipts called to
verify that business took place.
Vehicle expenses: if you use your vehicle for your
business you can write off all, or a portion of your motor vehicle
expenses. You can write off the percentage that is used for
business. Be prepared to prove it to CCRA. You will
need a log book with details of your business usage. I use
my day book. At the bottom of the page I write the number of
kilometers used for business. The purpose of the business
should be obvious from the notes on the planning page, but if it
is not, write it in. Write down the number on your odometer
at the beginning of the year, and at the end of the year.
Add up the number used for business and figure out the percentage
of business use. This can be a great business
deduction, but you MUST be able to prove to CCRA that your vehicle
use is for business or they will disallow it. The fuel for
your vehicle goes under the travel heading, but the percentage is
Core Business: keep all receipts related to the cost of
your product or service, such as special tools, software, forms,
inventory, delivery, freight, licenses, etc.
all advertising and networking costs
interest can be a deductible expense if the loan is related to
your business. If you work from home, a percentage of your
mortgage interest can be deducted, if you have a vehicle loan for
a vehicle that you use primarily for your business, the interest
can be a deduction. If you have any start-up or other types
of business loans, all the interest is deductible. If you
have loans, and the interest is not deductible, learn some of the
legal ways to make your interest deductible. This is a good
website learning how to make interest tax deductible: www.mutualfund101.com
Debts: if you have provided a product or service, and
didn't get paid, the cost can be a deduction. You must make
a reasonable effort to recover the bad dept.
and Accounting: your legal fees relating to your business,
your accounting and bookkeeping, and your bank charges are all
deductible. Your bank charges are for your business account.
If you don't have a business account and use your personal account
for both business and personal, you may deduct a percentage only.
your travel costs can be deducted if your primary reason for
travel is business. You may be asked to prove this, so write
down why you went and who you met with.
your phone bills, including your cellular phone. Be prepared
to prove that the usage you claim is for business, especially for
your cell phone.
if you rent an office, this is 100% deductible, if you work from
home, you can deduct a percentage based on your dedicated space
used for your business.
taxes: if you work from home, a percentage may be
insurance: if you work from home, a percentage may be
house expenses: if you work from home, a percentage may be
deducted, other expenses include utility tax, water, house
cleaning, and cleaning supplies. Be wary of deducting a
percentage of every dime you spend on your house, if you start to
deduct a percentage of every plant that you put in the garden, be
prepared to explain to an auditor how that helps your business!
Use common sense.
your home: if you work from home, and do some
renovations to, for example, build a new addition to house your
office. You think it is a great deduction, but it is not!
I do not recommend that you use household improvement
receipts as a deduction. If you do, any profit you make on
your house, from the time you bought it, becomes eligible for
capital gains tax when you sell it. For example: you buy
your house in 1990 for $150,000. In 2000 you put an addition
on your house for $30,000 and deduct the expense. If you
sell your house in 2001 for $220,000 ALL OF THE PROFIT, $70,000,
BECOMES ELIGIBLE FOR CAPITAL GAINS TAX. The tax you would
pay on the profit from your house (all the way back to when you
bought it) will likely never make up for what you would save in
taxes by deducting the household improvement expenses. So if
you paint your office, don't deduct it. If you put up a
fence at your daycare that is in your home, don't deduct it.
It is a capital improvement if you do, and your house becomes a
capital asset. You probably do not want that.
Expenses: There is a category for other expenses that do
not fit in any of the categories above. Be prepared to
detail what is in this category.
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