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Top 14 Tax Saving Tips

     

We have compiled a list of our top 14 tips to help you save on taxes for your business. We have curated this list from the top questions we get from our clients. If you are looking to save on taxes, organize your business, and file your statements correctly, this is the list for you! 

Tax Tip #1: Can I expense my Travel costs? 

Yes, with proper planning. If you have your expenses correctly categorized, you can write off your business travel. There are exceptions, so it is best to consult with a professional accountant to ensure you have this properly set up. Writing off your daily and work travel is a great way to save on your taxes!

 

Tax Tip #2:  Is it ok to use my personal credit card and personal bank for my business expenses?  

Yes and No.

Our advice is to not use your personal bank account for business expenses.  Have a Separate bank account for your business regardless of the business type. This allows segregation of recording. Only use the business bank account for business expenses. As for  Credit Cards, yes, you can use your personal credit card for business expenses but we still recommend keeping them separate. 

Bonus Tax Tip: Per CRA rules a credit card statement is not the source document and not allowed for evidence of expense.  Invoices from the vendor are what is needed. Bonus Bonus Tip: Many credit card companies allow a 2nd card on the same account.  Get a 2nd card and use it exclusively for business expenses. That way the use of 2 cards will help sort out valid business expenses. For example: on personal expenses you cannot expense the finance costs. However on the business expenses on a separate Card, the Finance costs are isolated and potential for a write-off expense on your business records or tax file. 

 

Tax Tip #3:  Are you correctly recording the use of your vehicle for business expenses? 

Here are our 3 options:

A: To comply with CRA Tax rules, if you charge your vehicle expenses to the business, you should assess the personal use portion and claim that as a taxable income Line - On your personal tax file,  By way of a Special T4a, or on your T4 from the business.  

B: You register a vehicle in the business name, pay the insurance, and record the purchase of the vehicle in the business records. At the same time, you also have a 2nd vehicle that you ID as your personal vehicle. This is often used when your business grows, and you need that 2nd Business vehicle.  

C: In the Case of your business leaning more to a part-time job, or a 50 /50 split between business and personal. You may be better served to pay all of the vehicle expenses in your personal bank account and then the Company pays you a Vehicle Allowance for a portion of the operating costs. 

 

For more information in your specific case book a FREE consultation and we can review your options. 

 

Tax Tip # 4:  Have you considered expensing your Training costs? 

Such things as Conferences, Webinars, sign up costs, and software-related costs. You can write off your continued education expenses that are related to your business. Some exclusions do apply here so it is best to have an accountant look over your files before sending it to the CRA. 

 

Tax Tip # 5:  Write off your COVID costs 

PPE, Signage, etc. This includes how to record wage replacement, subsidy, loans - consider the issues of recording funding as income vs. Non-Income (loan proceeds).  If you are unsure, we can help you correctly record the expense and the income as a result of COVID19. 

 

Tax Tip # 6:  Are your Profit Margins Calculated by Job?

Our suggestion is to separate all costs by Job or Project. At its base, each customer could be considered or viewed as a job. Overhead recovery included in your costs could give a better measure of Profit by Job/Project/Customer/Client. 

    

Tax Tip # 7:  You could do a review of cost comparisons. Lease vs Purchase.  

Here at Analysis360°, we can prepare a cost review and outline of the pros and cons of each. You may increase your total expenses with Leasing, but with Factored Financing or Equipment financing you may be able to front-load expenses with application fees and setup fees.  

 

Tax Tip # 8:  Uniform Expense for corporations.   (This tip is usually underutilized!)

Yes, you can expense your uniforms. This requires well maintained Corporate minute books, which detail Company policies. Such as Uniforms. With a Uniforms policy, you could also include drycleaning expenses as well as the purchase of the uniform. Make sure to familiarize yourself with the rules or consult an accountant before claiming these expenses. 

 

Tax Tip # 9:   Use your Corporation to help fund your downpayment on a home. 

That's right! If you are househunting your business may be able to support you. Contact us to learn more.

 

Tax Tip # 10:  Insurance - For Owners or Key Personnel

Did you know you can expense this insurance as long as the business/corporation is the benefactor/recipient of insurance proceeds/payouts? Critical Illness and Life Insurance is applicable. 

 

Tax Tip # 11:  For your Corporation- Meeting costs

By maintaining your business Corporate minute book with proper resolutions and planning you can expense your Quarterly business review meetings and your Annual Year-end Business meeting. Many people forget to book the meetings, and or record the respective Expenses for such meetings. 

 

Tax Tip # 12:  For your Corporation - Payroll vs Dividends or both?    

Payroll can result in larger expenses to the corporation. 

Consider that if you are the owner, when the business is in a Net Loss position it is less favourable to have a Salary/ wage. Consider Unpaid Management Bonus- delay the Bonus until a year the business could afford. 

Consider paying yourself, or the business owners with Dividends instead of Salary. In this case, the business has higher pre-tax profits, and payout the dividends to the owners (after the Business/or Company has paid its own Corporate tax.). The Payroll Tax rate for the owner could be at 45 %.  As Opposed to Dividends at 11% in the hands of the owner. If the owner is going to be dependent on CPP for retirement, then our Tax Tips is to Maximize payroll earnings to Approx 56,000.00 Including all Taxable benefits.  Any Income above the payroll Cap would be paid as a dividend to the owner. 

 

Tax Tip # 13:  For your Corporation Specialized Tax Tips - as a result of doing Detail Tax planning

We gather the past 3 years of both personal and Business tax files, and work with our clients to review Tax Planning GAPS, and Solutions. This is a great option to get a detailed explanation of how you can save on your taxes and improve your businesses efficenty. 

 

Tax Tip # 14: Tax Traps- and more….

Subcontracting or paying subcontractors without having contracts that agree with CRA rules - Employee vs contractor. Make sure you are classifying your staff and team correctly. 

GST rules-  Not using the correct rates - tax included, excluded. 

Meals and Entertainment-  Trap- Tips, liquor, have to be disallowed, removed from receipts.  Also, meals connect with the person and reason- Example:  Supplier= Bob Sunshine.  Reason to discuss Janitorial Services for our business. 

Consider using Tsheets.  The crew chief can have a laptop, log time for the crew (from 1- 20 )  a single sign-on - via his Ipad, right at the job site, The time entry is Geotagged and time logged. 

Consider using ODO Track - This device goes into your vehicle Connects to Satellite GPS . to record actual business trips and milage as well as personal Trips. ODO track provides a monthly log, as well as Annual Milage log- that meets CRA Standards. 

Time-saving tips. -  Take photos of all your receipts.  With your Smartphone, automatically upload to your accounting system via Receipt Bank. Ask us how. 

Supplies, and small tools.- Consider keeping your Receipts under 500.00  Greater than 500.00 for an item, Is expensed over several years Such as 4 or 5.  Example: Landscaper buys a new Industrial Ridable lawn mower pays 5500.00  - Not a tools expense, rather an Asset that is Expensed over multiple years. 

Small tools and Supplies accounts often are on CRA audits review list. 

Trap: Misuse of the Shareholder loan account. -Standard use, includes documenting money loaned to the company by the shareholder, This often is done with a Loan document which details the Loan Amount and any repayment schedule. Many small businesses use this account as a Float or slush account for miscellaneous, in and out of cash. This will trigger a CRA Audit. 

For repayment of Expenses, use and Expense report to capture Owner paid costs. Which will not be processed in the shareholder loan account, but just as a normal Vendor Payment. 

 

If you would like support on how to save on your taxes, please reach out to book your FREE Consultaion. We would be happy to help! 










































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Top 9 Tips - To prevent CRA Audits

Top 9 Ways to Avoid Small Business Audits

Owning a small business can be taxing enough without involving the Internal Revenue Service, so take care to avoid small-business audits. 

Small-business owners, especially sole proprietors, are at special risk of being audited. This is because many self-employment incomes can be underreported. 

 

The CRA increased its number of small-corporation audits by 145 percent from 2004 to 2005, and in 2006 issued a report in which it estimated that unpaid taxes topped $6.5 billion in 2001, with about 32 percent stemming from unreported business income. 

 

In 2018 the new government of the day brought in a new audit called net worth audits, as such they have Federal authority to examine bank records back as far as 1970- Additionally the Mainframe computers of CRA received significant Upgrades to AI and Data mining to uncover inconsistencies in your both your personal tax and business tax files. 

 

While many  tax professionals say it is unlikely the CRA will come knocking at your door, "if you're the one, it's not a good place to be," says Barbara Weltman, author of Small Business Taxes 2019  After all, audits cost time and money – two things most small-business owners have in short supply. 

 

This year more than ever, small businesses have had to shift and optimize. Make sure you are on the right track with your finances by keeping them organized, timely, and accurate. We have compiled these tips to help your business avoid an audit and to support you through one. 

 

Tip # 1  Keep Excellent Records. 

  • Tax time is easier when you have records detailing income, expenses, debts and deductions. This professionalism will show on your returns. Less than 4 percent of sole proprietors are audited, according to Weltman, and the CRA questions only 3 percent of Canadians about their tax returns, the Canadian Federation of Independent Business reports. Still, the CFIB advises keeping records and receipts for at least seven years. 10 years is more completed- digital formats are ok too. We work with our clients often to help them digitize their documents for safe keeping. BONUS TIP: Make sure to keep a backup of your files and records.

Tip # 2  File Complete Forms

  • CRA - Canada Revenue Agency is forced to take a second look if you leave parts of your schedules or returns blank. Double-check to make sure your documents are complete before submitting them. And don't forget to sign the forms. An accountant can help you look over your forms to make sure they are complete. 

Tip # 3  Report All Income

  • The government is particularly interested in whether the self-employed individual reports their full income, so be sure to properly list all earnings. Use the exact figures that appear on your T4a forms. "If you don't, the CRA computers are going to know it," Weltman warns. The IRS has also been on the alert for errors in Schedules  124 (bus income) Schedule 5018, the form used to report incomes from partnerships, Shell corporations and some trusts on individual tax forms. The government is more likely to investigate cash-based businesses, so make sure your accounting is tight if you own a restaurant, for example. Cash transactions of more than $10,000 need to be listed on separate tax Forms. 

Tip # 4   Keep Accounting Consistent  (year over year.)  Accounting treatment  and  Small business GAAP   (Generally Accepted Accounting Principles)

  • Most small businesses with sales of under $5 million can choose one of two accounting methods: cash or accrual. The cash method reports income in the tax year it's received, while expenses are deducted in the tax year they are paid. You may be required to use the accrual method if you produce, sell or purchase merchandise. This method requires income to be reported in the tax year it is earned and expenses deducted in the tax year they are incurred. You need to first receive CRA approval if you change your accounting method. Switching accounting guidelines on your own or mixing the two nearly guarantees the CRA will take a hard look at your returns. 

 

Tip # 5  - Employee VS Independent contractors

  •  The National Body of Accountants (CA’s  CMA’S CPA’s ) warns that CRA is on the lookout for business owners who qualify employees as independent contractors. If you tell your freelancers when and where to work and don't use contracts, for example, the government might consider the workers employees and expect you to pay payroll taxes.  This could amount to significant penalties and back tax assessments by Canada Revenue Agency. If you don't know wether to qualify your team as contractors or employees, seek professional help to ensure your records are correct. 

 

Tip # 6 -  Professional / Personal Expense Recording and classifications

  • The CRA  is strict about not mixing the personal and the professional when it comes to write-offs. To qualify for a home-office deduction, your kitchen table can't double as your desk. We advise taking a photograph of your workspace for tax purposes. You and your employees can use personal vehicles for business, but record when, where and why you used them, as well as the exact mileage. And it's fine to take the family to Florida while you attend a conference, but only your business expenses are deductible and must be recorded accurately. A personal portion of the expense must also be accounted for.  We use apps to help us keep this information organized in an easy to access format. 

 

Tip # 7  - Pay your tax dues on time. (Payroll, GST, Corporate Tax) 

  • Depending on how complex your taxes are, you may be required to pay corporate taxes on monthly installments or quarterly installments. 
  • Payroll Source deductions- even if you have no employees in 1 month the reporting must be completed, For payroll and GST accounts these accounts are Trust accounts, Money you collect on Behalf of the Federal government. So it is highly important to make the relevant payments on time.  

 

Tip # 8  - Phone calls, information requests and Desk audits. 

  • Respond to CRA phone calls (always get the Agents ID # Name and Contact phone #) Letters and Information requests: Make sure you reply in writing by the given due dates.  If letters are desk audits and ask for accounting reports , such as payroll wage report, or Detail GST collected-expense report, Provide the reports by the Filing due date. If you aren't sure how to respond or if the request is a scam, we can help you move forward! 

 

Tip # 9  - Utilize An Accounting Professional to do your Business Taxes. 

  • Depending on how complex your taxes are, you may want to seek help in filing taxes for your small business. By using tax-advice resources, you'll have a better chance of submitting returns that won't raise red flags -- thus avoiding an audit. If you don't think you need a professional you can try using tax software. Depending on what you get, Price and complex operations. What are Red Flags? As your Accounting and Tax advisors normally the following list. 
    • Non Payment of Payroll taxes
    • Non Payment of GST Owing
    • Non Payment of Corporate taxes owing
    • Filing Personal or Corporate Tax returns where year over year variances are more than 10 percent , Shareholder loans or capital accounts do not reconcile and other technical variances that Alarm CRA.  



Bonus Tips:

A:  If in doubt of a transaction, you can submit a transaction to CRA for a ruling. 

     Once you get a ruling back, that is the final arbitrated decision and you must follow it. 

     For example: Not sure if a person is a contractor or Employee, submit the Subcontractor contract and CRA Review form- a ruling will be made and eliminates all doubts or misunderstandings. 

 

B: Submit your business to a Pre-audit process- Ask Your Accountant if they provide such a service. The accountants at Analysis360° can assist with pre-audit assessments which will assist in the event an Independent audit is needed by a 3rd party Audit Accounting firm. 

 

If you have any questions about your small businesses' finances, we are here to help! Please book a free consultation and we can walk you through the process and best practices. 

 

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