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Save money on your bookkeeping, Wonder Woman-style!

Wonder Woman Super Hero Vancouver

When you are juggling a small business or start up and your life…. every penny counts.

Here are our top four tips for saving money on you  bookkeeping:

 

1. Organize your receipts

 

Keeping your receipts well organized can sometimes be difficult when you are busy running your business. As bookkeepers we are never surprised when a new client brings in bags or boxes of mangled receipts. However, if you are looking to make your bookkeeping as cost effective as possible then the easiest way to save money is to make sure your receipts are well organized so that the bookkeeper does not have to sort them for you.

In addition to sorting them, make sure they aren’t scrunched up into little balls. You may laugh but a lot of people do this and it takes a lot of time to un-scrunch them. Additionally scrunching them up can cause the ink to wear off which means that you are paying us to un-scrunch receipts that turn out to be blank pieces of paper.

Also if you want to claim the GST you paid on a meal as well as the tip (in addition to cutting down the amount of time we spend entering your data) make sure you staple together the original itemized restaurant bill to your credit/debit slip.

Sole Proprietors:

A common mistake a lot of first timers make is arranging their receipts by month instead of by category.

The fastest way for your bookkeeper to enter your bills into Quickbooks is if they are sorted by category. If you want to go one step further and really limit the amount of time a bookkeeper spends on you file, organize your receipts by company eg. Translink.

Corporations:

If you are incorporated then you need to organize your receipts by payment method (eg. Visa account, cash, business savings account) rather than by category so that it makes it faster for your bookkeeper to enter your bills and reconcile your accounts.

2. Keep your receipts/documents in one place

Create a filing system for your receipts/ documents and utilize that system so that you can ensure all paperwork is easily accessible.

Keeping your receipts all over the place can result in two issues.

  1. You will lose some receipts. This means your reporting will be inaccurate and you may miss out on including significant write-offs in your tax return.
  2. You will need to keep contacting your bookkeeper to let them know about additional receipts you have found or to ask them to hunt down important documents for you. This means that you will utilize more of their time and your fees will increase.

3. Save your online receipts to a flash drive, or upload them to LedgerDocs

These days a lot of businesses send email receipts. Although you have the option to forward all of your email receipts to your bookkeeper we recommend that you download your invoices and save them onto a flash drive that you can submit with your paperwork. This saves your bookkeeper time as they do not have to sort through all of your emails, in turn saving you money.

It also means that if your email crashes you have all of your important documents saved elsewhere.

If you’re using LedgerDocs, snap pictures of your receipts and forward them to your unique email address in real time. We’ll take care of the rest! Contact us here if you are interested in signing up!

4. Don’t keep receipts you can’t claim

Know what you can and cannot claim and know your categories. For example: in most cases YOU CANNOT CLAIM CLOTHES as an expense unless they are branded with the company logo or required safety wear.

Additionally, you cannot claim haircuts, facials or any other kind of personal maintenance even if you are a TV personality or the face of your company.

Placing receipts into your file that you can’t claim just means that your bookkeeper spends extra time sorting through receipts, remember time is money.

 

Regardless of what state your bookkeeping is in we are happy to help you. That said, we always recommend that you consider these points because it not only helps you save money it keeps your bookkeeper happy and guarantees that you will be added to their secret list of favorite clients.

If you need help getting organized contact us today.

5 Items that are NOT business expenses

A lot of business owners are guilty of keeping receipts for items that cannot be claimed as a business expense. To save money on your bookkeeping, by limiting the amount of time your bookkeeper spends sorting through receipts, leave the following receipts out of your folder.

1. Clothes

You may also be required to wear a certain type of outfit to work on a regular basis such as a suit. However, unless you are buying specific safety gear or are required to wear a branded uniform any clothes you purchase are considered a PERSONAL NOT BUSINESS expense. This includes associated costs such as dry cleaning and laundry services.

I know this is a terrible reality for most of us in particular for all of the office workers out there. As much as we wish things were different (we too would like to get some money back for looking this good on a daily basis) the CRA just won’t budge on this one.

Until the day when we start a revolution by wearing burlap sacks in protest please refrain from sneaking your clothing purchase receipts into your bookkeeping folder.

2. Personal maintenance

When you are the face of your company or the company you work for it’s important to look the part. This can be expense we all know Botox, makeup and personal training isn’t cheap!!

That said the CRA wants you to be beautiful on your own dime. Clearly this faceless monster doesn’t understand the pressures of being a local celebrity.

Again until we find a way to make them understand how important looking and feeling good is when you are a business owner please keep these receipts out of your bookkeeping.

3. Groceries

Eating is expensive!!! It would be really nice to get some of that money back on your food consumption especially considering that majority of your eating takes place while working.

Twice a year you can throw a party and claim it as a business expense. Keep that in mind when gathering your receipts.

Anything more than that is just groceries for your family, you know it…we know it…and the CRA will know!!

 

4. Solo Meals

So you ordered Subway for one during your lunch time “business meeting”…hmmmm interesting. Unless you went Dutch, which we know you didn’t, you can’t claim single meals as a business expense without running the risk of having it rejected during an audit. In addition your three daily trips to Starbucks don’t count as business meetings.

The best way to protect yourself and prove that your “meeting” is legitimate, in the event of an audit, is to write the name of the person you were meeting on the meal receipt.

Rejection = Penalties and interest

5. Personal items, trips & gifts

Did you really purchase that tent for your business trip to Pemberton? We may accept this as true if you are a journalist who works for a local paper that rewards you with love not money, or more logically a tour guide. But when the average business owner adds this receipt to their folder the bookkeeper will automatically assume it is personal unless you make a note claiming why it is a business expense.

Tickets to Disneyland, ski passes, expensive artwork, adult toys and climbing the grouse grind to have lunch will also be filed by your bookkeeper under “I don’t think so” unless you write a convincing argument on your receipt in advance.

 

The main thing to know about bookkeepers is that we want to make sure your expenses are recorded correctly so that if you are audited you have nothing to worry about because all of your expenses are legitimate business expenses that would be approved by the CRA.

To find out more about how we can help you with your business or to determine if you have some expenses that are an exception to the rule contact us today.

Home office tax deductions

Home Office

Photo courtesy of Sean MacEntee

Do you know how to properly claim your home office as an expense?

In order to deduct expenses, the work space must either be:

  • the place where the individual principally (more than 50% of the time) performs administration or employment duties,or

  • used on a regular and continuous basis, for meeting customers or other persons in the ordinary course of performing the office or employment duties.

If you meet the requirements of either description above, you are eligible to deduct your work space related expenses.

However the following rules apply:

  • Your claim cannot exceed the annual gross income that you generated from your office or employment
  • Your office or employment expenses cannot create or increase your annual loss for income tax purposes.
  • If the expenses related to a work space cannot be deducted in a taxation year, the expenses will be carried forward to the following year. In the case that you are an employee who works from home your expenses carry forward so long as you are reporting income from the same employer.
  • Regardless of whether you own or rent your home, your work space expenses are considered a reasonable portion of expenses you pay for the maintenance of your home. The cost of fuel, electricity, light bulbs, cleaning materials and minor repairs can be claimed.
  • If the work space is part of a rented home, a reasonable proportion of the rent is otherwise deductible. However, no deduction can be made for the rental value of the work space area if you own your home.
  • Consequently, if you are not a commission sales employee expenses on account of capital cost allowance, taxes, insurance and mortgage interest cannot be deducted.
  • If you are a commission sales employee and are entitled to claim expenses, a reasonable proportion of the taxes and insurance paid on your owned home. However, no mortgage interest or capital cost allowance can be deducted.

Calculating the percentage you can claim

1. Determine what percentage of your homes total floor space is taken up by your home office.

Eg. Client A has an office that takes up 10% of the total floor space of thier home.

2. Determine what percentage of your time spent in your home office is for employment purposes and for personal purposes

Eg. Client A is using their office for employment purposes 60% of the time while the remaining 40% of the time it is used for personal purposes.

3. Use these percentages to calculate the percentage of your total home expenses that you can deduct.

Eg. In the case presented 6% of Client A’s  home maintenance costs are deductible  (60% (time used for employment purposes) of 10% (size of the space in relation to the house))

What can you consider supplies?

The word supplies is limited to materials that are used up directly in the performance of the duties of the employment.

They include:

  • long-distance telephone calls and cellular telephone airtime that reasonably relate to the earning of employment income and various stationery items.

Supplies do not include:

  • the monthly basic service charge for a telephone line, amounts paid to connect or licence a cellular telephone, special clothing customarily worn or required to be worn by employees in the performance of their duties, and any types of tools which generally fall into the category of equipment.

Sole Proprietors:

You can deduct expenses for the business use of a work space in your home, as long as you meet one of the following conditions:

  • it is your principal place of business; or

  • you use the space only to earn your business income, and you use it on a regular and ongoing basis to meet your clients, customers, or patients.

You can deduct part of your maintenance costs such as heat, home insurance, electricity, and cleaning materials. You can also deduct part of your property taxes, mortgage interest, and CCA.

To calculate the part you can deduct, use a reasonable basis such as the area of the work space divided by the total area of your home.

If you use part of your home for both your business and personal living, calculate how many hours in the day you use the rooms for your business, and then divide that amount by 24 hours.

If you rent your home, you can deduct part of the rent and any expenses you incur that relate to the work space.

The amount you can deduct for business use of home expenses cannot be more than your net income from the business before you deduct these expenses. In other words, you cannot use these expenses to increase or create a business loss.

Salaried employees:

You can deduct expenses you paid for the employment use of a work space in your home, as long as you had to pay for them under your contract of employment.

These expenses must be used directly in your work and your employer has not reimbursed and will not reimburse you. Also, you must meet one of the following conditions:

  • The work space is where you mainly (more than 50% of the time) do your work.

  • You use the work space only to earn your employment income. You also have to use it on a regular and continuous basis for meeting clients or customers.

You can deduct the part of your costs that relates to your work space, such as the cost of electricity, heating, and maintenance. You cannot deduct mortgage interest, property taxes, home insurance, or capital cost allowance.

If your office space is in a rented house or apartment where you live, deduct the percentage of the rent as well as any maintenance costs you paid that relates to the work space.

Commission employees:

You can deduct expenses you paid for the employment use of a work space in your home, as long as you meet one of the following conditions:

  • The work space is where you mainly (more than 50% of the time) do your work.

  • You use the work space only to earn your employment income. You also have to use it on a regular and continuous basis for meeting clients and customers.

You can deduct the part of your costs that relates to your work space, such as the cost of electricity, heating, maintenance, property taxes, and home insurance. However, you cannot deduct mortgage interest or capital cost allowance.

To calculate the percentage of work space expenses you can deduct, use a reasonable basis, such as the area of the work space divided by the total finished area (including hallways, bathrooms, kitchens, etc.).

For maintenance costs, it may not be appropriate to use a percentage of these costs. For example, if the expenses you paid (such as cleaning materials or paint) were to maintain a part of the house that was not used as a work space, then you cannot deduct any part of them. Alternatively, if the expenses you paid were to maintain the work space only, then you may be able to deduct all or most of them.

If your office space is in a rented house or apartment where you live, deduct the percentage of the rent and any maintenance costs you paid that relate to the work space.

 

 Small Business Consulting

The Truth About Meals

meals

Photo courtesy of Nick Nguyen

Do you know how to properly deduct your meal expenses? There are different rules for different people depending on who you are, who you work for, and what your employment contract states when it comes to deducting your meals.

The 50% Rule: The maximum amount you can claim for food, beverages, and entertainment expenses is 50% of either the amount you incur or an amount that is reasonable in the circumstances, whichever is less.

What is reasonable? Ultimately the CRA defines what is reasonable. If you get audited, you will have to prove to the CRA auditor that your expense was reasonable. Is it reasonable to spend $500 on entertaining a client who pays you $50 a year? Probably not.

These limits also apply to the cost of your meals when you travel or go to a convention, conference, or similar event. However, special rules can affect your claim for meals in these cases. See sections on solo travellers and conventions below.

These limits DO NOT apply if any of the following apply:

  • Your business regularly provides food, beverages, or entertainment to customers for compensation (for example, a restaurant, hotel, or motel).

  • You incur meal and entertainment expenses for a Christmas party or similar event, and you invite all your employees from a particular location (note that you are limited to six of these events each year).

  • You bill your client or customer for the meal and entertainment costs, and you show these costs on the bill.

  • You incur meal and entertainment expenses for a fundraising event that was mainly for the benefit of a registered charity.

Claiming Meals For Business

What business gifts are you giving your clients? There are tax implications to the choices of gifts you purchase. Gift baskets (with food in them), gift cards to restaurants and coffee shops are considered meals. Which means they are only 50% deductible to you.

Many businesses supply coffee, tea, creamers, bottled water, juice, pop, snacks, or sometimes alcohol in the office fridge.  In order to claim these you must have a business reason, names of who participated and the reason for consumption.

Also as a  business you are allowed to write off six office events a year and claim a 100% deduction on those events.

For any entertainment expenses to qualify as a business expense, you must be able to demonstrate that the amount was incurred for the purpose of earning income, the onus is on you as the business owner to keep track.

You must have a business reason as well as names of customers or persons being entertained.  For example, if you’re going to spend big money on tickets to a hockey game, keep a record of who you were entertaining and have a good reason for it. The more expensive something is, the more important it is to have a good reason for conducting business.

Never eat or drink alone if you want to write it off unless you are one of the exceptions. Take office breaks with a co-worker, call it team building and you can write it off. Be sure to write on the receipt, who you were with, and what was the purpose.

A cautionary tale: a client was recently audited and asked to provide the name and phone number for each receipt that had been deducted, the client was not able to provide this information, and all the meals were disallowed. It’s all good…until you get audited.

Convention expenses

You can deduct the cost of going to conventions, up to two a year. The conventions have to:

  • relate to your business or your professional activity; and

  • be held by a business or professional organization within the geographical area where the organization normally conducts its business.

This second limit may not apply if an organization from another country sponsors the convention, and if the convention relates to your business or professional activity.

Sometimes, convention fees include the cost of food, beverages, or entertainment. However, the convention organizer may not show these amounts separately on your bill. If this is the case, subtract $50 from the total convention fee for each day the organizer provides food, beverages, or entertainment.

You can deduct this daily $50 amount as a meal and entertainment expense. However, the 50% limit applies to the daily $50 amount.

Food, beverages, or entertainment at a convention do not include incidental items such as coffee and doughnuts available at meetings or receptions at the convention.

Travelling Expenses for Employees

Travelling expenses include food, beverage, and lodging expenses but not motor vehicle expenses. You can deduct travelling expenses as long as you meet ALL of the following conditions:

  • You were normally required to work away from your employer’s place of business or in different places.

  • Under your contract of employment, you had to pay your own travelling expenses.

  • You did not receive a non-taxable allowance for travelling expenses.

  • You keep with your records a copy of Form T2200, Declaration of Conditions of Employment, which has been completed and signed by your employer.

The 12-hour rule: You can deduct food and beverage expenses if your employer requires you to be away for at least 12 consecutive hours from the municipality and the metropolitan area of your employer’s location where you normally reported for work.

Solo Travelling employees

For a solo meal, you need to know if you fit into one of the special categories or if you have a contract that states whether you are required to carry on duties in different places.

As a rule of thumb travel and eat and drink solo at your own peril.

If you do, keep a log of how long you were away, why you were away, and how come you couldn’t get back within 12 hours.

Arrange your meals together with an employee, team member, colleague, client, customer, supplier, or partner to discuss business matters.

Unless you meet the criteria of railway, commission sales, transport, or have a contract to carry on duties away from the place of business or in different places, remember the 12-hours-away rule.


References:

Travel solo at your peril http://www.taxdetective.ca/articles/article/1482041/89556.htm

Canada Revenue Agency