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March 2006: Tax Season

Tax season is around the corner and it’s time to organize your receipts and statements. Many of you will say “What? It’s only March. I start working on my taxes around the middle or end of April”. I have met many of you who will file LATE and lose money! I say, “Why wait for Spring? Do it now!” My colleague Peter Simpson, CMA and owner of Simpson and Associates kindly agreed to write an article to get you started on the right track towards getting your finances in order for tax time. Thanks Peter.

This article is about preparation of your tax return and how to retain as much of your hard earned money as possible. To that end I have compiled a list of typical expense categories:

  • Advertising
  • Automobile (Lease payments, interest on a car loan, depreciation of the actual vehicle, fuel, repairs and maintenance, insurance, licenses and permits)
  • Bad Debts
  • Bank Charges
  • Business taxes and licenses
  • Conferences and Convention Fees
  • Interest Expense
  • Insurance expense for machines, building or offices
  • Internet fees
  • Membership Dues for business related organizations
  • Meals and Entertainment (subject to 50% rule)
  • Office Rent
  • Office Supplies
  • Postage and Courier
  • Professional Fees (Accounting, Legal, Consulting)
  • Promotion Expenses
  • Repairs and Maintenance
  • Salaries to other individuals
  • Telephone/Telecommunications Expense
  • Travel Expenses

In addition, if your office is in your home, you can deduct a proportion of home-related expenses, including mortgage interest, property taxes, insurance, maintenance and utilities. If you are renting a house or apartment, a portion of the rent is deductible.

The two things that I believe are important to remind small business owners to do are:

1. Keep all your receipts!!! The best way would be in separate file folders using the above as potential categories. Ask your accountant if you are not sure about an expense. It’s better to keep the receipt and ask, then throwing the receipt out and not receiving a deduction. If you don’t have a receipt, Canada Revenue Agency will disallow the expense if they decide to audit you.

2. If you are claiming automobile expenses, keep some sort of log (this could be as simple as your date book or electronic organizer that indicates where you went and how far it was). When an accountant is completing your tax return, he or she will need to know the proportion of business mileage compared to total mileage driven. Again, if Canada Revenue Agency decides to audit you and you have automobile expenses, the first thing they will ask for is your logbook.

We all work hard for our money; by being a little more organized you will be able to keep a lot more of it. A simple example is if you are earning $40,000 per year and you throw out or fail to obtain a receipt for a $100 expense and, in turn, you are not able to claim it, you have thrown out approximately $30 in tax savings.

Simpson and Associates is an accounting firm in Burlington that specializes in tax strategies for small to medium sized businesses. If you have any questions concerning your tax situation please feel free to call Peter Simpson, CMA at 905 464-0029 or email me at peter@simpsonandassociates.ca