BMP ACCOUNTING & TAX INC.

Today is May 15th and we are exactly 29 days away from filing your sole proprietor tax return. If you are incorporated and your year end is December 31st, you are about a month and a half away from your filing deadline. This might be a stressful time of year for you…trying to find receipts left in your glove compartment…catching up on entering data into your accounting software…maybe you do not know who still owed you money as of December 31st.

Whatever your situation is, it may be a good time to think about whether your system is working for you or against you. A client of ours constantly asks two questions on her social media: what is holding you back in your business and how can I help? Your business’ finances are usually an overlooked piece of the puzzle and we can definitely support you keeping everything in order. But what if you cannot afford a $500 per month bookkeeper you ask? Not all clients need us the same so we offer different accounting support.

1 - Light Involvement: we have some clients that like to do their day-to-day and maybe even their bank reconciliations…but staying current with filing their GST returns and remitting payroll remittances might be where they need support. In this scenario, we would set you up with a cloud-based accounting system so that we can both access your information. There is also an option that is very cost-effective if you do not wish (or need) for a hands-on accounting system where the system automatically compiles the information for you on a daily basis. The initial set up takes some work, but it’s definitely worth it in the end because your year end is ready come tax time.

2 - Getting Deeper: some clients prefer to leave their invoicing and keeping track of payments coming in to us. We have some clients set up on cloud accounting software for those who still wish to see their information at any moment. Other clients are set up on our desktop software and are provided with monthly financial statements. We do all of their GST, payroll support, etc. We also provide our clients with what we call the decoding of financial statements to enable the client to understand their financial position to make good business decisions.

3 - High-Level: we have some clients that require more guidance in making business decisions. Business strategy support is why they came to us on top of bookkeeping support. We can answer questions of where are we and where are we going? They need cashflow projections, growth projections, government grants support, and other business decisions.

If you are struggling to keep everything organized, come have a chat with us. We can work out a plan to let you focus on what you do best.

Can I write that off? If you have asked this question, you are in good company. Getting to know what is a true business expense can save you bundles at tax time and prevent CRA to disallow your expenses. It can be pretty hairy, as a tax accountant, to figure out what your expenses should look like if you mixed your groceries bills with office supply receipts. The more you ask your accountant to pull out their calculator, the more it will cost you to get your taxes done. Here is what we recommend to make your life easier (and cheaper).

1. Keep your business account for business.

It is tempting to run through the drive through and reach for the business debit card. I would caution you against that. It blends business expenses with personal. At the end of the year, if you have not done anything with your books, it can be hard to remember if you bought that printer paper for personal use or for business use…or maybe that purchase was for the kids’ school supplies…who really knows?

The real bad news in this equation is that if CRA decides three years down the road that your paper purchase was in fact the kids’ school supplies, you will not only owe the taxes on the increase in your income, but the interest on the date that the taxes were due. For example, if CRA is auditing your books on May 15, 2021 for the 2018 year, your interest charges will be calculated using the date of April 30, 2019. That is two years of interest to add to the tax bill.

2. Get an app.

An app is a cheap solution to your accounting problems. We have people with apps that pull data directly from their business bank and credit card accounts automatically. It requires a bit of work initially to set it all up…but once the set up is done, the app gets it done for you. You can take pictures with your phone using the app for it to match it to bank transactions. It even breaks out the GST!

3. Know what you can claim as a business expense.

The big question is: did you use it to earn income? The $40,000 kitchen renovation you just did probably did nothing to help your yard maintenance business. I think the meals and entertainment receipts are one of the most questionable ones you might have. If you meet a client for business, keep the receipt and write the name of the client you met with. It is the surest way to ensure it does not get disallowed by CRA.

Just like marriage, the coming together of two people can be bliss or a complete disaster. It starts off with a great idea; Mark and Mike love each other’s company and both are experienced plumbers. What could be better than going into business together?

Pro Tip #1: Put Everything in Writing

The informality of the relationship may make you feel like just because it is your friend that nothing needs to be in writing, but the opposite could not be truer. Having things in writing keeps the both of you accountable to your agreement and your partnership.

Speaking of paper trails…you should also both be aware of what is going into the bank and what is going out. If you cannot reconcile your bank and keep accurate records of your accounts receivable, consider hiring a third unrelated party to keep track of those things for you.

Pro Tip #2: Put Your Cards on the Table From the Beginning

Conversations are much easier to have when you are in the honeymoon stage of your partnership. Before he crashed the company truck, it may be easier to discuss how an accident may affect each partner’s share in the insurance costs.

Other important conversations might be:

1. When will we pay dividends?
2.  How do we decide who gets paid what?
3. What if we hire someone to help? Where does this person’s salary come from? Who tells this person what to do?
4.  What happens if one of you dies or is unable to work?
5.  How long do you wish to own your business?
6.  What if a buyer shows interest in purchasing your business?

Pro Tip #3: Hold Each Other Accountable

It all boils down to fair and honest communication. If the other party angers you, tell them…in a nice way. There is a tendency to let family and friends’ poor behaviour slide…but it is not a good business move. Pick a time when you are both fresh and clear minded. Remind yourselves why you are in business together, then tackle the hard stuff.

Clients usually come to us wanting guidance on how to pay themselves. It is an important piece of the puzzle because the method of remunerating yourself affects not only your cashflow today and after retirement, but it also can change our game plan on how you can save for retirement.

There is a large body of financial experts that will argue that paying one’s self solely dividends will provide the business owner with the best tax savings and with the right strategy a greater retirement plan. However, if you do not pay yourself a salary, you cannot invest in RRSPs and you do not pay towards your Canadian Pension Plan (CPP).

CRA call center agents receive calls from distressed taxpayers that were under the impression that CPP was every citizen’s right and had not understood that not earning a salary meant that you were not contributing to your CPP. It can be a harsh discovery at 65 when your retirement plan included your dependence on your CPP.
Conventional wisdom dictates that owners of a corporation that has annual taxable income of less than $500,000 you should pay yourself enough salary to maximize your RRSP and CPP contributions and pay yourself and pay dividends to yourself and your spouse for additional tax savings through tax splitting.

Still unsure of what to do? Contact us, we would love to discuss your options with you.

Are you self-employed use your car for work? Maybe you are an employee and your employer pays for all expenses related to the vehicle you use for work. A mileage log is an important step in using your vehicle as a tax write-off. Keeping poor records can result in an expensive blunder if CRA decides to come knock on your door for a surprise audit.

A detailed logbook is the best defense to support any vehicle expense used as a tax credit. For each business trip, you will need the following information:

date
destination
purpose
number of kilometers you drive

If you do not wish to keep a paper log, there are many apps on the market to help the task of keeping an accurate log. Please also remember to jot down the odometer reading on your vehicle at the start and end of the fiscal year.

As a side note, if you change your vehicle during the year, please keep all details of the sale of your vehicle and the purchase of your new one. Don’t forget to record the odometer reading on both your old vehicle and the new one!

Have more questions? Do not hesitate to contact us!

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