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Serving businesses and families since 1982 |
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Desy’s Bookkeeping & Tax Services of Niagara |
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Bookkeeping & Tax Preparation Guide
Bookkeeping is a major challenge for many small businesses and many households. Whether you are keeping your business' books yourself, or you have decided to let me help you to take care of them, here are some tips to help tame your paper monster.
-Obtain a local business license from your municipality and, if required, register for the Goods and Service Tax (GST) and Provincial Sales Tax (PST). If you have employees, register with Canada Revenue Agency and Workers' Compensation Board.
-In order to keep your business separate from your personal affairs, open a separate business account at your local bank. Order numbered cheques with stubs to record cheque details and obtain a deposit book. With this type of account, ensure that your bank will be mailing you a statement along with your cancelled cheques every month so that you can perform bank reconciliations.
- Every week, take 15 minutes to file your receipts. This can be a simple as stuffing them all into a monthly file and sort 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. 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 likely won't write off any of them. Setting up a business phone will eliminate most of this extra work.
-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:
-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, a year end coincides with the calendar year. You have four months to file your taxes, usually due at the end of April, but if CRA 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, and a penalty for filing late. Take these deadlines seriously, because the Canada Revenue Agency does.
-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 professional if you need to. If you pay more than $2000 per year in taxes for two out of the last three years, Canada Revenue Agency (CRA) 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? Keep all receipts and make sure to mark clearly on the back what they were for if not obvious. All receipts must be legible. Revenue Canada will not allow a receipt that has been written over in pen. The receipts should show the name of the business you purchased from.
-Office: keep your stationary receipts, software, computer, tools, maintenance and repairs, office rent. If you work from your own home, 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.
-Business: business license, business tax, business fees
-Insurance: building, vehicle, WCB, disability.
-Meals 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 CRA, 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 to verify that business took place.
-Motor 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 CRA. You will need a log book with details of your business usage. 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. Keep track of the number of kilometers used for business. These numbers will be used at year end to calculate the percentage of business use. This can be a great business deduction, but you MUST be able to prove to CRA that your vehicle use is for business or they will disallow it. The fuel, insurance, repairs, parking, car washes, interest on vehicle loan and lease payments, etc. will all be calculated considering percentage of business use.
-Advertising: there are numerous forms of advertising and they are all tax deductible.
-Interest: 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, there may be options to make your interest deductible.
-Bad 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.
-Legal and Professional: legal, accounting, bookkeeping, financial advisor, consultants, etc. can be used as long as they pertain to your business.
-Travel: 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.
-Telephone: your phone bills, including your cellular phone. Be prepared to prove that the usage you claim is for business, especially for your cell phone.
-Heat and Electricity: 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.
-Property taxes: if you work from home, a percentage may be deducted based on the area used for business.
-House expenses: if you work from home, a percentage may be deducted. Other expenses include utilities, property tax, house cleaning, etc. Be wary of deducting a percentage of every dime you spend on your house. If you start to deduct a percentage of every penny that you spend, be prepared to explain to an auditor how that helps your business! Just use common sense.
-Upgrading 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 2008 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.
-Other 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.
I hope this helps you understand and organize your business books and preparations for year end. |