For most people, the notion of their annual tax return is a panic fuelled review of, ‘did I do everything right all year?!’ Or even worse, ‘I’ve done nothing all year and now I’m frozen in fear.’ First off, deep breath, shoulders back, you’re a kick ass business owner and you’ve got this. Or you’re on your way to getting this.
Personal Tax 101
Business owners are universal in their most common question: ‘what can I deduct as a business expense?’ Simple answer? Anything that you spend money on that directly helps you make money is a business expense. Slow down keener—just because you think well in the bathtub doesn’t make bubble bath an expense. That cute suit for meetings? Nope, also not an expense. But if you bring your client into the bath and put a logo on that suit, now you’re talking . . .wait a minute. What advice did I just give?!
Jokes aside, the information that goes on your tax return is relatively basic—your income and your expenses. For most people, they feel like they are missing something with the expense side of things. Some expenses are obvious—you joined SEWN. Deduct that. You joined the local Chamber of Commerce. Deduct that. You have business insurance—deduct it. Obviously, stuff like your printer cartridges and your software subscriptions and all that stuff. Here are my top tips for trouble points and missed opportunities:
- Cell phone use. If you have one cell phone, it’s not 100% business. Be straight up about that and determine how much of your cell time is actual business
- Auto use. This includes fuel, maintenance, insurance AND either lease costs or capital cost allowance for the purchase (capital cost allowance is a fancy way of saying a portion of what it cost you to buy it gets deducted every year). Purchase interest is also deductible. What to watch for? None of us are using our vehicles for 100% business. Keep a log (there are apps for that) to be CRA compliant. Worse case for 2015 when you didn’t know? A percentage is a reasonable filing position, but if you get audited, you’re hooped. So start that log for 2016.
More info: http://www.cra-arc.gc.ca/tx/bsnss/tpcs/slprtnr/bsnssxpnss/mtr/menu-eng.html
- Business use of home. Yes, ma’am, your mortgage interest (just the interest portion!) or rent, insurance, hydro, gas, gutter cleaners etc are all deductible—if you have clients visiting you in your home. There is an argument for it even if you don’t have clients visiting your home, but that tete a tete is between you and your accountant. Your percentage claimable is based on the square footage of your office versus your entire home.
More info: http://www.cra-arc.gc.ca/tx/bsnss/tpcs/slprtnr/rprtng/t2125/ln9945-eng.html
I Need Game Plan. Now.
Ok, so with the basics in hand, you might still feel overwhelmed, freaked out, and be seeing colours and shapes you shouldn’t.
Let’s break it down step by step.
- It’s just taxes. Seriously. Perspective.
- Check out what CRA has to say about Business Expenses:
- Check out what your business schedule looks like on your tax return:
- Divide and Conquer:
a. Income—add up what you know you earned
b. Expenses—add up what you know you spent. Check out the business schedule example above for categories.
- If you are registered for GST, note if these amounts include GST or if they are net of GST. If you collect GST, you need to deduct your expenses NET of GST (because you got that money back, yo)
- Weird things—If you have gone through the revenue and expense summary and you have a bunch of stuff left over, put those on your Questions List to go over with your tax professional.
- If your taxes are dead simple and you don’t have any questions at all and you’re confident and keen, then go ahead and file them yourself. However, as a business owner, you know the benefit you provide your clients as a professional in your field. Be confident in bringing a professional into the loop for your taxes to give you the same benefit you give your clients.
Examples of a tax professional’s impact could be whether or not you want to claim capital cost allowance; instances when you don’t want to claim some expenses to increase other credits on your return; instances when you’re being too aggressive with expenses and putting up red flags etc
- All done. Easy, yes?
2016 Taxes are My… totally manageable task.
- 2015 taxes are taken care of and you’re looking forward to next year. Congrats on being a grown up tackling your business.
- Feel free to high five, buy a shiny thing, or pour yourself some bubbles.
- Create yourself a system. I don’t give a hoot what it is. Your options include, but are not limited to:
- An accordion folder with expense types. No information mid year, but less chaos end of year
- An excel spreadsheet. Oh, don’t get me started on this. Are there tabs? Are there colours? Tell me about the formulas? You can get crazy in excel and it’s cheap and simple. Go to town bella!
- Desktop software. Oh, you’re daring. Got yourself hooked up with Quickbooks or Sage? Do it. You enter that stuff. Just make sure you balance the bank and your credit cards at month end. Or the accounting ghosts will haunt you. For ever more . . . .ever mooorrreee.
- Dream big and bounce your books up into the Cloud. What?! Cloud accounting is the future (and waaay more intuitive than that desktop stuff). Get real time info and take control easily.
- Stick to your system. Or evolve your system
- I don’t care what organizational and informational tool(s) you use, just make sure they work for you and if they don’t, evolve them! Change! Gracious, I know it’s hard to admit, but change is a glorious thing when it’s for the better.
Do You Need Professional Help?
Oh golly. How uncomfortable . . .you might.
When to invest in a bookkeeper:
There are three reasons business owners hire a bookkeeper:
- They simply don’t have a clue and they know it
- They kind of get it and they want to know more, so they seek some training
- They’re up to speed and want to focus on their craft so they give the books to a pro
When to invest in an accountant:
If your taxes are a T4 and a T5, file them yourself. If you have a small business and you have that gut wonder feeling about your business schedule, it’s a good time to bring in a professional.
As always, this is for educational purposes only. Please contact your financial advisors prior to filing!
ABOUT THE AUTHOR
Alexis Harrington, Sand Dollar Bookkeeping (Sechelt)
Alexis used to prepare tax returns before she started her own company offering full cycle bookkeeping services; Individualized training & coaching; and specializing in forward thinking cloud accounting systems and app integrations. She is professionally trained and obsessed with seeing business owners know their numbers and thrive.