Colours of Money

BY DWAYNE RICHARDS, CPA (THE ENLIGHTENED ACCOUNTANT) ACCOUNTING TIPS FOR THE CREATIVE BUSINESS OWNER

Make record keeping a PRIORITY

“The hardest thing in the world to understand is the income tax

Albert Einstein

6 Buckets are all you need to organize your expenses quickly and easily

Business Expenses

Three keys guidelines;

1. Any expense incurred for the purpose of gaining or producing income

2. Incurred with a reasonable expectation of resulting in future business

3. Is reasonable under the circumstances Common expense guidelines;

Claim 50 % use for cell phones unless it is a business-only phone

Claim 50 % use of home internet is suggested

Keep Receipts?

You need copies of receipts to identify if sales tax like GST or HST were charged.

Digital receipts are accepted by CRA - Canada Revenue Agency

Examples:

• Cell phone

• Internet

• Memberships

• Office Supplies

• Advertising

• Marketing

• Coaching

• Accountant

• Legal

• Credit Card Interest

• Bank Fees

• Business Travel

Training Expenses

You need to be constantly investing in sharpening your skills, training and courses can be 100% tax write-offs if they are ordinary in your industry.

Ask yourself the questions,

• Is the expense common and accepted?

• Is it helpful and appropriate for your business?

New for 2020

• $250 training tax credit

• $500 digital news subscription tax credit

Examples:

• Books

• Courses

• Workshops

• Seminars

• Retreats

Home Office Expenses

You can claim home-based business expenses as long as your home office space meets three requirements.

1. It is used as your primary place of business

2. It is used exclusively for your business3. You regularly work there

Two ways to calculate the % of expenses that can be deducted.

The number of rooms used, for example, the guest room of a 2 bedroom apartment.

% of space = space used / total space

Expenses:

• Rent/Mortgage Interest

• Hydro

• Gas/Heating

• Insurance

• Property Taxes

• Maintenance/Repairs

Vehicle Expenses

If you use your car for business purposes, for example, traveling to meet clients, going to purchase office supplies, visiting your accountant, or attending training, you can deduct some of your vehicle expenses

You can lease a car or purchase, either way, it is a moving tax deduction for your business. You will need to have a record of the following;

• Date of the purchase or the lease start date

• Make, Model, and year of the vehicle

• Price before sales taxes

• A copy of the original agreement is best. Maximum amount $30,000

It is important to track your mileage because it is the % of the business-use that is tax-deductible.

• Total kilometers driven

• Total driven for business

Example: 1,000 of 10,000 = 10%

Examples:

• Fuel

• Insurance

• Repairs

• License & Registration

• Loan Interest

• Parking - 100%

• Tolls - 100%

Food and Entertainment Expenses

For meals and entertainment to be justified as a business expense, it must meet three criteria;

1. Have an opportunity to generate income

2. Create goodwill

3. Thank customers or associates for a job well done.

Tax Filing Tip:

Enter the total amount paid less taxes on your tax return.

The tax software will calculate the 50% reduction.

Examples:

• Team Dinner

• Client Lunch

• Coffee with a Prospect

• Dinner with a Colleague

Equipment Expenses

You might purchase property, such as a building, furniture, or equipment, to use in your business or professional activities. Since these properties may wear out or become obsolete over time, you can deduct their cost over a period of several years.

This yearly deduction is called a capital cost allowance (CCA). You cannot deduct the full cost of the depreciable property when you calculate your net business or professional income for the year in which you acquired the property.

You can claim tax write-offs for equipment that you already owned before you started your business including your computer, camera equipment, or any other equipment. Again, original receipts will be required to calculate the amount.

Things to note;

• % of personal-use

• Asset classes - each type of equipment as a class with a predetermined percentage.

Examples

• Computer

• Camera & Equipment

• Video Equipment

• Tools