Record Keeping

First of all, remember that any credit amount showing up on your bank statement is considered your income unless proven otherwise. That’s why it is important to periodically review your bank statements and make notes wherever the incoming funds do not constitute your business revenue. It could be tax or GST/HST refunds from the Government, returns of loans, proceeds from the sale of capital assets, your personal deposits and so on. Remember that there are two methods of reporting income.

The cash method: income is reported for tax purposes when it was actually received, and expenses are deducted when they are actually paid. This method is only available to farmers, fishermen and very small businesses.

The accrual method: income is reported when “earned” and expenses are deducted as they are “incurred”.

Secondly, make it a rule to keep proper track of all your business expenditures. The law says you have to keep a reasonable set of books. However, the law fails to define what that is. So, you look to what they traditionally accept. You just have to have the records to support the amount of income and expenses that you are claiming. The better your records, the greater your tax deductions are.

It’s really simple if you want to have the tax advantages of a small business, just be a business. Think like a business, and pay taxes like a business. The better you practice business skills the less money will go to the tax department. Always keep all receipts whether you think you can write them off or not. It’s a matter of making a good habit of collecting receipts. You remove the non eligible receipts at the end of the year. This way you will not miss any deductions because you did not realize it was a legitimate business expense at the time.

Always document why you made the expenditure in the first place. Get into a habit of writing a “story” on the back of the receipt or invoice: Gift, John Doe, re thanks for contract, and so on. Before spending another dollar stop to ask yourself a simple question “Is this deductible?”, and then write a “story” about how it relates to your business. Make sure there is no personal component to this expense, and if there is, prorate it. Here are some more simple rules:

- Keep logs for cash expenses (parking, payphones)

- Keep a proper auto distance log

- Classify receipts/invoices (current, capital, prepaid)

- Enter into bookkeeping system. Simply Accounting or Quick Books are well-known and reliable for small businesses.

- File hard copies of primary documents in folders/envelopes for retrieval.

You can always CONTACT US to discuss your particular situation.