Last Blog Post we discussed GST/HST audits and how to avoid them! But what are some things you can do if you find yourself in a GST/HST Audit or Review situation?

1. Approach it with the right attitude: GST/HST is dollar for dollar important: Our tax dollars! If GST/HST is not correctly remitted and reported by our business neighbours, it ends up costing tax payer money, and taking government funds away from things that are important to us. Consider if your business neighbour was incorrectly claiming thousands of dollars of GST/HST back from CRA that was not rightly theirs. If it's intentional, they should be stopped. If it's accidentally, then they should be corrected. CRA has to find those things, and checking your work is part of that effort. As a business owner, it is your responsibility to be ready to supply the details and support of the numbers you filed with CRA. And that's all you need to do. CRA isn't out to 'get you'. CRA is simply out to make sure the correct numbers are being filed, period. And as a business owner... you have the SAME GOAL! You also want the correct numbers to be filed with CRA! Same goal! Sure, the approach is slightly different; CRA doesn't want you to get back more than you should, you don't want to get back less than you should. But at the end of the day, we are on the same team with the same goal; what is filed should be correct. Understanding that you are on the same team as the auditor is a huge help, because you can literally ask them "what specifically do you need to see" and they will give you specific and actionable answers. Don't be intimidated or anxious. If you've made a mistake somewhere, then it just gets corrected. You may owe because of a mistake you've made. But if you've taken your bookkeeping seriously, and followed the advice of my previous hacks newsletter, there shouldn't be anything major of concern.​
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2. Make it easy for the Auditor to Understand: Approach everything you are submitting as if you were the auditor; what would YOU need to understand and feel confident in the numbers?
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   The auditor is looking for a list. If you claimed $45,000 in sales, and $4,950 in GST/HST collected, then you need to be able to show the details. A list of each invoice with the date, customer name, sales type, and amount of GST/HST collected is required. The numbers in the list needs to add up to the numbers filed. (By 'sales type' what I am referring to is, if you have different products/services subject to different taxes, be sure to note that. Honey sales is zero rated. Sales to Alberta are at 5% GST. Sales to the US are zero rated. Etc). Be aware that paid date is not the same as invoice date. These lists you should be able to download directly from your bookkeeping software. Ideally you have them saved from when you filed the GST/HST return. (QBO, for example, saves a 'snapshot' of these details, so if items are added to the period later, you still have the list of numbers you filed with for CRA if audited). If your business is not the type that 'invoices' clients, (perhaps a store with a register or an e-commerce operation), be sure that the reports you provide from your register or software breaks out important details such as gift cards sold (not technically sales, just a promise to provide goods and services in the future), tax collected, etc.
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   It is the same approach now for the credits you have claimed. (These are called "ITCs, or, "Input Tax Credits"... aka GST/HST paid on expenses). If you claimed $2,459.69 in GST/HST paid on expenses, you will need to list out every bill and receipt that comprises that amount: Bill date, supplier name, bill total, and GST/HST amount. Again, paid date is NOT the bill date. (Bills can be paid on their bill date, but that's not always the case). You should be able to provide on demand any bill or receipt listed on that list with the matching date and amount that is on the list. So, if you claimed HST on a 'payment on account', be prepared for a lot of extra work!!! Because now you have to prove what bills that $5k was applied to and provide those! Which is the wrong way to go about bookkeeping and thus why it's not easy to have in a GST/HST audit. This is why we enter the bills and their payments into our bookkeeping, not just the payments as if they were the expense themselves (aka cash accounting). Just backing GST/HST out of payment transactions means you're gonna have a bad time in an audit situation. (Typing that inspired a meme now added below). And those physical or pdf bills should all have the the GST/HST amount listed out with the GST/HST number of the vendor showing. If they don't have a GST/HST number on them, ask the vendor for a re-print of the bill with the correct GST/HST amount and their GST/HST number. The bigger the bill, the more CRA will want to see it. So, during the year, BEFORE you are audited, that's when you need to make sure you are not missing any of these bigger bills, and that they ALL have a GST/HST number on it! (Refer to my last hack "you gotta see it to believe it").
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3. Vehicle Log!!!: If you use your business vehicle for 100% business, you don't have to keep a vehicle log forever... but you do have to support the 100% business use. So keep a vehicle log for three months with a photo of the starting odometer and a photo of the ending odometer (or from oil change to oil change with the odometer on the bill). Keep this vehicle log as a reference for when you are reviewed. This is even more important to do when you buy a new work truck, and your usual GST/HST payable turns into a refund. CRA is gonna want to take a closer look at that... be ready! If you use your vehicle for less than 90% for business, you need to keep that vehicle log on an ongoing basis, and only claim the correct percentage of GST/HST on your vehicle expenses. Too late? In an audit with no vehicle log? You have receipts with dates. You have client invoices with dates. You have a couple of vehicle maintenance bills. You have google maps! You have enough clues to put together a 3 month vehicle log! Make one!
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4. Communicate, meet deadlines, ask for help, and if needed, object!: I couldn't choose my three favorite hacks on this subject, so, the last few are pretending to be #4! Firstly, always communicate with the auditor. You're working together... if you ghost them, they may just go with what they have and disallow the rest. So keep the communication going, and always meet those deadlines. Get their name right and don't lose their phone number. If you have a hard time understanding what is being requested, ask that it be written out in a letter and sent to you. Sometimes the 'lingo' is familiar to us in this space and we forget that it's not as familiar to others, so feel free to reach out to your bookkeeper or accountant to help work with you on the requests, they may have an easier time understanding the asks. Lastly, if there are things that you feel were disallowed incorrectly (either because the CRA auditor made a wrong call, or perhaps the paperwork didn't make it in on time), OBJECT! File an objection right away. (And *I* just got my idea for my next YouTube video! How to file an objection with CRA!) You have 90 days to file an objection, so don't delay. Pay any tax bill that arises from the audit, because if the objection is accepted, the money will be returned to you. But if the objection is only partially accepted, not only are you incurring interest, CRA collections will be bugging you for the funds in the meantime, and objections take forever (think 8 to 16 months!). So clear up the bill, and object to get it back.

Last Blog Post we discussed why a business would want to register for GST/HST before they have to. This month we discuss what businesses can claim GST/HST credits on. (And next Blog Post we'll discuss what a business can't claim GST/HST credits on!)

Today, we'll look at three different categories of what businesses can claim GST/HST credits back on; 100% business use purchases, purchases with a personal use portion, and business use of home expenses;
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1. Claim 100% of the GST/HST credits on Direct Expenses: You want to make sure to claim all the HST on transactions that occurred that would not have happened if you were not running the business. Be sure that the bill-to name on the bill is either the name of the GST/HST registrant (either a person in the case of a non-incorporated business, or the corporation's official name if incorporated) or the operating name of the business. Only the person/business being charged the GST/HST can claim the credit. We'll dig into that more next month! If you're unsure about what direct expenses (and related GST/HST) you can claim for your business, check out my blog post on what expenses a business can claim here​
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2. Prorate the GST/HST on the expenses that have a personal portion: If you have an expense that is used for both business and personal, you can only claim the business portion of that expense, along with the associated GST/HST. If the business portion is over 50%, then you'll want to see that expense entered into your bookkeeping. Your internet bill or your cell phone bill are good examples of mixed use expenses that you can claim a good portion of. Once you've worked out the portion that is used for business, for example 75%, then you have a few options for adding this to your bookkeeping. One option is that you can enter the bill with two separate categories: on the first line put 75% of the expense portion and catagorize it as the expense (cell phone, or internet for example), and then calculate the GST/HST on that reduced amount, (or manually put in 75% of the GST/HST in the tax field). Note in the description that it is 75% of the bill, and communicate it to your tax preparer how you entered these so that they don't further reduce the amount! If you are paying the bill from your business account, or you'd like to have the full amount of the bill in the bookkeeping, on the next line choose the category "Owner's contribution/Draw" or a similar category. Put in the remainder of the bill amount... NO HST can be claimed on the personal portion, so the total amount here would be the remaining amount of the bill.. no GST/HST!
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3. Claiming GST/HST on Business Use of Home expenses: This is a weird one. If your business is incorporated, you would need to connect with your accountant about how to claim your home office expenses. If your business is not incorporated, then you may already know that you may be able to claim a portion of your home expenses related to your home office expense on your tax return to reduce your taxable profit. But did you know you can also claim the GST/HST credits related to that? If you do not have a business location outside of your home, and you have a designated office space in your home to run your business, you can calculate the square footage of that space as compared to the square footage of your home, and how often it is used for business vs personal. Then, you may be able to use this percentage of your home expenses to reduce your taxable profit (connect with a tax specialist to see if it is applicable for your specific situation). If you can claim this, then how do you claim the associated GST/HST? Usually you CAN'T claim the GST/HST on expenses related to a property that is mainly used for residential use. But I said Business Use of Home was a weird one! We can claim the GST/HST credits related to the portion of the expenses we claim for business use of home at the end of the year! Whether you add the business use of home expense to your bookkeeping monthly, quarterly, annually, or not at all, is personal preference, but since it's usually such a low percentage, and because it's expense you'd pay even if you weren't running a business, many people opt to just put in an adjusting entry at the end of the year, or only adjust for the HST portion. You can put in an expense for just the percentage for the year (and associated HST) on the last day of the year before preparing your GST/HST to be filed. Or you could just add a GST/HST adjustment using a Journal Entry! If you do the latter, it's important to tag the GST/HST as "GST/HST on purchases/ITC/Line 106". Here's a video that can show you how!

Last month we discussed the CRA Business Number, and three of it's most common 'program accounts'.  One of those program accounts was the GST/HST account (the CRA Business Number with "RT0001" at the end). But does a business NEED to register for a GST/HST Account? Does a business WANT to register for a GST/HST Account? 

1. When does a business NEED to register for a GST/HST account?: CRA has a fabulous resource that provides all the specifics, but the TL;DR is: if you are selling anything in Canada that is subject to GST/HST, AND your sales are over $30,000 in one year, you are required to register for GST/HST. (Technically, over $30k in four consecutive quarters, so if your sales from July 1st to June 30th go over $30k, ya gotta register). That's $30k in sales, not the profit. If you are selling across Canada, be aware that Provinces have similar thresholds for Provincial Sales Taxes, though the thresholds vary depending on the province. So, if you are located in Ontario, but selling to BC, you may also need to register for BC PST if you go over their threshold. It's not where you sell FROM, it's where the ownership of the goods is received. But CRA's $30k threshold is when you HAVE to register. A business can elect to register for GST/HST before they reach that threshold. And there are some very good reasons why they would want to!
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2. But does a business WANT to register for GST/HST?: Most sales tax and industry tax that a business collects, they pass ALL of it up to the governing body they are collecting it for. GST/HST is very different though. When you are registered for GST/HST you are special!! Businesses registered for GST/HST do not have to pay any GST/HST on any of their business expenses! That's right! None!! It doesn't happen at the store though. You report to CRA how much GST/HST you paid on business expenses for the period, and they refund it to you! Let's say there's a box of widgets that the business purchases in Ontario for $1,000 + HST. The business paid $1,130. If that business was registered for GST/HST, they'd receive back $130 from CRA, and the widgets only cost them $1,000. If that business was NOT registered for GST/HST, then they don't get back the GST/HST, and the box of widgets now costs them $1,130. You can see why businesses would want to register for GST/HST! BUT, that is only HALF the story! Some business may not want to fire this up before they have to if they're not ready for the responsibility or don't feel it's worth the hassle.
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3. Then why would a business not want to register for GST/HST?: If a business is registered for GST/HST, they are now a TAX COLLECTOR on behalf of the government. This is more work, has the risk of spending money in the bank that isn't yours, and comes with interest and penalties if filed or paid late. It also increases how much your products and services cost to the consumer. Let's say you sell a product you created from widgets. If you are not registered for GST/HST, if you have chosen to charge $3,000 for that product, then you just charge $3k to your customer. But if you are registered for GST/HST, you must charge GST/HST on that product! So, you would charge your customer $3k + GST/HST. In Ontario, you would charge $3,390. You keep the $3k, and you give CRA $390. (If you chose kept your total at $3k, you'd be making less money, as you'd have to 'back out' the GST/HST, so your sale price would only be $2,654 + HST). So being registered for GST/HST increases your price to your customers, AND you now have to collect it, hold on to it for a period of time, and then report it and remit it to CRA. Both how much GST/HST you collect and how much GST/HST you pay on your business expenses are reported and remitted to CRA at the same time. You collected $390 in HST, but you also paid out $130 on the widgets, so, you would tell CRA both of these amounts and only give them $260! ($390 - $130 = $260). You still come out ahead! BUT, it takes discipline to recognize this, keep on top of tracking it, filing it on time etc. It's sneaky!!! If you don't keep your eye on it, and you forget that some of the money in your bank is actually not your money, but CRA's, it can be the cause of many stresses and headaches (and late filing fees, and interest, and collections actions...). Never give CRA more money than you have to! But when a business stays on top of their bookkeeping, and is ready to file and pay each period, being registered for GST/HST is a great benefit! All of those expensive investment purchases at the beginning of the business journey have quite a bit of GST/HST to claim! But if you are a service provider with low overhead and costs, being registered for GST/HST before the $30k threshold may be more hassle than it's worth. Every business is different!

Is your business registered? TRICK QUESTION! Your response should be "it depends; registered with who?"

Many Provinces require a business to register with the province in order to operate as a business in that province. For example, in Ontario, if you are going to run the business under a business name other than your own personal name, you will need to register your business name with the Province of Ontario and get a business license to operate under that name in Ontario. It’s pretty quick'n easy. It includes a name search to make sure no one else is operating under that name in Ontario, and only costs $60. If you do this, they will give you a Business License to operate under that name, and Business Identification Number. This is NOT the same thing as a Business Number, which is a federal thing.

You do not have to register your business with the Federal Government until there is a reason to do so. There are various federal agencies, but two come to mind for business registration: Service Canada & Canada Revenue Agency (CRA). You do not have to register with Service Canada unless you hire employees (at which point, you will need to be able to issue ROEs via Service Canada’s ROE Web, and you will need to be registered with CRA before you create an account with Service Canada). You do not have to register with the Canada Revenue Agency (CRA) and get a Federal Business Number unless any one of these things occur:

• You want/need to start charging GST/HST
• You hire an employee
• You incorporate the business
• You will be importing/exporting internationally

Today's blog post will focus on the first three in the list because those are the most frequent reasons for registering with CRA.

When any one of these things occur, you create a Business Account with CRA and you are issued a Business Number. It is nine digits long, and I sometimes refer to it as the SIN number of the business. That is because it is basically a way for the CRA to track how much you owe them! Let's pretend the CRA Business Number you are issued is 1234 56789...

1. GST/HST Business Account: Once you have your business number, a business program account is now created under that number. For example, if you want/need to start charging GST/HST, a GST/HST Business account is created with your nine digit business number with RT0001 appended at the end. Your GST/HST Account Number is 1234 56789RT0001. (Think T as in sales Tax). This program account is how your GST/HST payments are tracked.
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2. Payroll Business Account: If you hire an employee, you will need to withhold and pay payroll taxes. So, you create a Payroll Account with CRA. Your Payroll Account Number is your business number with RP0001 at the end. Your Payroll Account Number is 1234 56789RP0001. (Think P as in Payroll Tax).
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3. Corporate Tax Business Account: And if you incorporate your business, now not only do you pay personal income tax on your personal income from the business, now the Corporation owes Corporate Income Tax on the Corporation's income too! And to track that, you guessed it, it's gonna need a business program account. Your Corporate Tax Account number is your business number with RC0001 at the end: 1234 56789RC0001. (Think C as in Corporate Tax).
   
   

A business can have one, two, or all three of these program accounts depending on their situation. A business can have employees but not be registered for GST/HST, or vice versa. A Corporation is not automatically registered for a GST/HST account when the Corporate Tax Account is created. If your business is not incorporated, then the program accounts are all connected to your personal name (you are the business). So it's important to remember, if you incorporate your business then you will need to close any CRA Business Program Accounts you may have had connected with your personal name, and now create new CRA Business Program Accounts (a new Payroll account and/or GST/HST account) if needed under the Corporation's new Business Number.

The real business hack is understanding how to pay to the correct business program account, and also to the correct period!  Paying to the incorrect period causes wasted time and money! More than you realize! Yes, it can be fixed, but to sort it out can take more time than you may think. Paying on time and to the correct program and period will help you to not give CRA more money than you have to!

Stay Tuned for next month's blog post; When does a business HAVE to register for GST/HST, and why would a business WANT to register for GST/HST before they have to!?!

If you have any specific questions you want addressed in that post, feel free to email me!

I’m often asked, what expenses can a business claim? There are the obvious ones of course. A list of the standard categories to add up can be found at here, but what are the not so obvious transactions that a business needs to track? What expenses can a business claim?

A core message you hear from me is:  We are tracking our totals mainly for our own benefit, to make sure we are achieving the profit and growth we are aiming for. To this end, we want to make sure to capture all transactions that that would not have happened if we were not running the business. We want to get as close to reality as possible. In order to do so, we must keep our personal purchases separate from those that are business related.

Special Hack for the Grey Situations: "Would I Reimburse An Employee For That?" 

A really good guide for know what is business and what is personal is to think, ‘’Would I reimburse my employee for that?”.  For example, if you asked them to pick up donuts for the entire office because of an office meeting, would you expect them to pay for all the donuts? No, you would have no issues with giving them the money to cover it. If they went out at lunch to buy themselves a fast food lunch, and brought back the receipt, would you cover that? Probably not, especially if they did that every day. If you were at a job site that was far enough away from home that you and your crew needed to stay overnight in a hotel, would you cover that for them? Yes. Also, because they could not go home to pack a lunch the next day, you would probably cover their travel meal. Often, construction companies offer compensation for safety rated steel toed boots. In contrast, if one of your sales reps came into your office and said, “I need to have fresh breath for when I do my sales pitch to prospective clients, so I expect you to cover the cost of my toothpaste” you would likely think he was crazy!

Using the “would I reimburse an employee for this” guideline can be extremely helpful in deciding if it is an expense you believe is related to running the business or not. It also helps in considering if it is an expense that the CRA would allow if you are ever audited, because their goal is to find the number that is closest to reality too. 

ProTip: If you are claiming a meal expense, write down on the receipt who you met and how it was related to business, so that the info is there if you are audited.  And yes, you can include the Tip in the entry.  (But know that even business meals expenses are only claimed at 50% for tax purposes).  If you are travelling out of town, you can claim travel meal.  But if you're in town, and you're not meeting a business related person, then it's not claimable, as per the guideline above, "would I reimburse an employee for this". 

Mixed Use Expenses:
These guidelines also can help to understand mixed use expenses that you are allowed to claim. Mixed Use expenses are expenses that support the running of the business that also support the running of your non-business life, such as your car and your home office.

Let’s start with Vehicle Expenses

If you had a company truck that your employees picked up at the shop, and use to go to jobsites or clients, would you expect them to pay for any of the gas or maintenance? No, you would cover those truck expenses 100%.  Similarly as a business owner, a company vehicle that is used 100% for business, you can claim 100% of all expenses. But when you start out, you generally have a personal vehicle that you use for both personal errands and business running around, that is used for less than 100% for business.

If your employee used their own vehicle to just drive into the office in the morning, and then back home at the end of the day, would you cover the cost of their gas and vehicle maintenance? No. Driving to and from the main place of work, such as a store or office, is not something you would reimburse for.  CRA also does not consider this business use if you're just driving into your own office.  If your employee drove around in their own vehicle to sales appointments, they would expect some sort of compensation. Would you cover every single gas receipt they put in their car for the entire year, and 100% of all their maintenance bills? No. How would you feel if they drove 10 minutes to a meeting, and 10 minutes back from a meeting, and filled up their gas tank from empty along the way? Would you reimburse for the full tank of gas? No. In Canada, we generally use “Vehicle allowance” or a “per km rate” to reimburse employees for use of their personal car. Though, for business owners, currently in Canada, it is a bit more complex. 

For business owners, CRA would like to get a little closer to reality. That is, the per km rate does not account for higher maintenance costs for certain vehicles, or the variance of gas prices across the country. So, they become more detailed for business owners. (As mentioned above, getting as close to reality as possible).

For business owners, the way that the CRA allows vehicle expenses is by percentage. If you use your vehicle for business, you can claim the percentage of all your expenses that correlate with the percentage of time you use your vehicle for business. To do that, they expect you to keep a vehicle log so that the percentage can be calculated. They are trying to get as close to reality as possible. No more, no less. You can claim that percentage of ALL the vehicle expenses; maintenance, gas, plates, insurance, lease, Capital Cost Allowance (the vehicle losing value over time) or the interest on the loan. (Not the full loan payments. Paying down a loan is not an expense, it is decreasing how much you owe. It is the interest on the loan, that is an expense, and you can claim a percentage of that).

If you have a work vehicle that you ONLY use for business, then the percentage you are claiming is 100%. If you use your vehicle half the time for business, and the other half the time for personal, then you can only claim 50% of your vehicle expenses. If you use your vehicle for both personal and business, you are required to keep a vehicle log, and to note your odometer at the beginning of every year. (There are apps that can help!) If you use your vehicle for 90% or more for business use, then keep a vehicle log for 3 months with the odometer reading from the beginning and the end of the three months, and you can use that as a baseline to show CRA if you are ever reviewed or audited.

The next question is, how do you track all of the vehicles expenses, if you are only claiming a portion, especially if you do not know the percentage until the log is added up at the end of the year?
Good question.

Many bookkeeping software applications have not yet accounted for this percentage issue, (often referred to as “allocations” or “Personal Use Allocations”). Some have, especially since the rules for the amount you can claim for GST/HST on these expenses follow the same rule. Most have not, even the bigger named bookkeeping software. Many of them work on the assumption that your vehicle is 100% business use. 

You have options. To make your bookkeeping easier, if possible, you can try to focus on only one vehicle for business use and use another for personal errands. Otherwise, here are some suggestions:

• If you use the vehicle for more than 90% business, you can treat it as if you use it 100% for business. 
• If you use the vehicle for 50% to 90% for business, you could enter all the expenses into the software, and keep in mind that the vehicle expense total on your profit and loss is higher than what you will end up claiming at the end of the year when looking at your Income Statement. Then you would subtract the personal portion with an adjustment at the end of the year. 
• If you use the vehicle for less than 50% business use, you can put the vehicle expenses into a special “Owners Vehicle Use” equity account on the balance sheet, and then ADD with an adjustment to the expenses at the end of the year. 

Pro Tip – use only one payment method for that specific vehicle’s gas, and a different payment method for the rest of the family’s gas. This way, you can see the total gas for that specific car easily by knowing, “all gas purchased with xyz card is for Vehicle A”.  Work smarter not harder!

If you are incorporated, it’s important to discuss how you will be handling your vehicle costs with your accountant at the beginning of the year. Also, before you purchase a vehicle, connect with your accountant to ask whether they think given your specific situation the vehicle should be purchased in your name or the corporation’s name.

Business Use of Home Expenses
Another scenario to consider. Kind of weird, but in keeping with the ‘would you reimburse your employee’ metaphor. If you wanted an office to run your business out of, and one of your employees said they had the perfect room for you at their place, would you expect to be able to work from their home office for free? Probably not. They would likely expect some sort of rent to be paid. Similarly, this is why CRA allows you to include your own home office as an expense. Then how do they calculate this amount?

It is a percentage game again. 

There are two categories to consider here. The cost of maintaining your home that you would have to pay anyway if you had a business or not, and those costs that are higher than usual because you are running a business, such as telephone and internet use, and maybe electricity if you have a workshop on your property.

For those costs you would have to pay anyway, first you calculate the percentage your office space takes up in your home. Then, you add up all the costs it takes to run your home; utilities, insurance, maintenance, property taxes, rent or mortgage interest (not the full mortgage payments, just the interest portion). These are not usually paid for out of the business bank account, because they are below 50% business use, and would really mess up your Income Statement totals. We usually total these up at the end of the year (and associated HST), and then add an adjustment in at the end of the year, mainly to decrease your taxable income. For my personal situation, I claim 12.5% of my Business Use of Home expenses (Also known as home office expenses).

The other category to consider are the home mixed expenses that are higher because you are running the business, such as telephone and internet use. 
​These can be claimed at a higher percentage, and you likely want to see them on your Income Statement, because you want to consider them when evaluating your profit. Consider adding the business portion only into your monthly entries into your bookkeeping, along with associated HST. Still pay the full bill out of your personal account, but mark the business portion of the expense you enter as “Paid by Owner” (or, paid by cash).

Mixed Expenses can be a pain. But, they do help reduce your taxable profit! And in the context of wanting to get as close to reality as possible, how CRA expects them to be claimed, and how you want to see them when evaluating your Income Statement, you can see how it is helpful to know what is expected and how you are going to handle them ahead of time! For example, right now, go outside and write down your odometer reading. Then grab a notebook to keep in the car, or download an app, to keep track of kilometers you drive for business!
In Summary: Start a vehicle log, today.

- You can claim a portion of all your vehicle expenses. The percentage you can claim is related to the percentage you drive your car in the year for business. The vehicle expenses you want to track are:

• Vehicle Gas
• Vehicle Insurance
• Vehicle maintenance 
• Vehicle License Plate Sticker costs
• Interest on a Vehicle Loan
• Vehicle Lease

Notice that I wrote “Vehicle” in every expense there. For clarity, you need to name your Ledger accounts specifically with the word “Vehicle” in it. Do not put all insurance into one GL account. This will cause headaches at year end. Put your Vehicle Insurance into It’s own GL Account, and put your business insurance into it’s own GL Account.

- You can claim a portion of all the expenses it costs you to live in your home. This is a much lower percentage, so it usually is an adjustment added in at the end of the year. The Home Expenses you will need totals for are:

• Home Insurance
• The INTEREST on your home Mortgage (just the interest, the mortgage company will mail you the total interest paid in the year to you in January)
• Home Utilities such as Hydro Electricity, Heating costs, and Water costs.
• Some home Maintenance costs. (A higher percentage if related to your home office).
• Home Rent if you rent.
• You generally can claim a higher percentage of your Cell Phone and Internet expenses.

- If you are incorporated, connect with your accountant with how they feel is the best way to claim your mixed use expenses given your specific situation. And if you are incorporated, connect with your accountant before you purchase a vehicle to discuss if the vehicle should be in your name or the corporation’s name. There are tax implications for both! 

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Bookkeepers and Accountants are two different roles, and are both important to have on a businesses team.

Bookkeepers look back at what happened. Accountants look forward and help plan based on what happened.

Record Keepers input data. If the Record Keeper (sometimes the office manager) also happens to know and understand bookkeeping, then they do bookkeeping roles also. But not always. Record keepers are generally 'live', that is, real time. They help with the AR and AP. In bigger companies they are dedicated clerks for just AP and AR. Record keepers can be clerks, office managers, admin help, etc.

A bookkeeper makes sure all entries are entered correctly. They may or may not be tasked with doing all of the data entry. Often they are. But their main value is that they make sure it's entered correctly, and that all accounts are reconciled against the bank statement, the credit card statement, the loan statement, etc to make sure nothing was missed, and correct any typos or double entries. Bookkeepers are generally 'after the fact', not 'real time' like record keepers. Business owners often have already paid the bills and invoiced their clients, and bookkeepers are making sure those transactions have been recorded, and if not, they put them in. Bookkeepers are the 'control' on the final totals, they verify they are all in properly. Bookkeepers understand double sided accounting, assets vs costs, interest vs principal. Loan payments are entered correctly. Bookkeepers can tell you how much to pay for sales tax, how much to remit for payroll taxes. The bookkeeping software takes these totals, and presents them as draft financial reports: the Income Statement (or Profit and Loss), and the Balance Sheet. If your bookkeeper cannot properly reconcile, enter loan amortization, or confirm the accounts to real life, then they are not bookkeepers, they are record keepers. Record keepers also are valuable if you're looking to economize! You're Financial team can have three players! Just don't expect them to understand how to put in an asset purchase correctly.

Next the accountant reviews the totals. They help analyze and interpret these totals. They may need to make adjustments, such as depreciation, and dividends issued. They may suggest strategies such as management bonuses, and input those entries also. They use these totals to assist with business planning including tax planning, business growth and business structure. You must not wait until the year is done to have your accountant review these totals. You should go mid year, and also in the third quarter, to help with future looking tax planning and advice. It's hard to fix what has happened. It's better to have a plan. The taxes you'll save by planning and being intentional are huge. Accountants also prepare the final financials that go with the business's tax return. These financials are more streamlined, and are the final prepared reports that governments and banks want to see.

People often use their accountant as bookkeepers. This is foolish and a waste of money. This is not where their value lays. If a business tries to input their own records and expects the accountant to reconcile the bank and fix their errors instead of using a bookkeeper to do so, they will waste their money and not use the accountant for what their value really is. When a business owner uses an accountant to 'fix' their work, they are forcing their accountant to focus on compliance only, and getting something reasonable filed with the government. And the message you send to your accountant is "I am just using you for compliance". No one is going to care more about your bookkeeping and tax planning than you do. If you use your accountant for compliance, that's all you'll get.

Bookkeepers look back, and make sure the totals are reconciled, verified, and correct. Accountants look forward, and though they prepare your tax returns, their value lies in PLANNING your tax returns before the year is done, and what to do next year. But they can only advise you on what the totals are saying. If you have bad totals, then the advice will match.

One person can wear many hats, but it's important to know, they are three different hats.
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Some accountants focus more on compliance than on planning.  When interviewing for an accountant, be sure to ask them if the offer advisory services, and will meet you mid year to go over the mid year totals and future planning.

#BeThatBusiness that has their financial team set up for Success!