Here at Danielle’s SOS Financial we are committed to providing you with the largest tax refunds you deserve and finding every tax deduction you are eligible for.
To make sure you don’t miss something, and to help you get every deduction and credit you can, we’ve prepared this handy checklist.
–Bookkeeping vs. Accounting–
If you’re a small business owner, you might be wondering if you need to get a bookkeeper or an accountant – or both.
And now that you understand the need for bookkeeping, you’re might be wondering, “How does it differ from accounting?”
The words “bookkeeper” and “accountant” are often used interchangeably. However, there are some key differences that determine the main responsibilities of each role.
–Bookkeeping is a Subset of Accounting–
An accountant, professional bookkeeper, or an employee of the business can do your bookkeeping.
If you’ve just started a business, chances are you’ll be doing the bookkeeping yourself.
This is no bad thing. When launching a new business venture, it’s crucial that you have an intimate grasp of your financial situation. What better way than to do the bookkeeping yourself?
Essentially, bookkeepers take care of the day-to-day financial work.
They keep detailed and accurate financial accounts and use this financial clarity to help make informed business decisions.
–Accountants are Financial Experts–
Accountants are usually qualified, registered members of a statutory association. So they often have titles like CPA (Certified Public Accountant) or CA (Chartered Accountants).
That’s how they can charge the big bucks.
These experts will use the accounts provided by the bookkeeper. They focus on analyzing the transactions to provide financial advice.
They’ll also use the information in the accounts to file tax returns and other reports.
Whereas bookkeepers handle the day-to-day financial tasks, accountants often step in on a quarterly basis to provide advice and make adjustments.
Most people probably think of bookkeeping and accounting as the same thing, but bookkeeping is really one function of accounting, while accounting encompasses many functions involved in managing the financial affairs of a business. Accountants prepare reports based, in part, on the work of bookkeepers.
Bookkeepers perform all manner of record-keeping tasks. Some of them include the following:
-They prepare what are referred to as source documents for all the operations of a business – the buying, selling, transferring, paying and collecting. The documents include papers such as purchase orders, invoices, credit card slips, time cards, time sheets and expense reports. Bookkeepers also determine and enter in the source documents what are called the financial effects of the transactions and other business events. Those include paying the employees, making sales, borrowing money or buying products or raw materials for production.
-Bookkeepers also make entries of the financial effects into journals and accounts. These are two different things. A journal is the record of transactions in chronological order. An accounts is a separate record, or page for each asset and each liability. One transaction can affect several accounts.
-Bookkeepers prepare reports at the end of specific period of time, such as daily, weekly, monthly, quarterly or annually. To do this, all the accounts need to be up to date. Inventory records must be updated and the reports checked and double-checked to ensure that they’re as error-free as possible.
-The bookkeepers also compile complete listings of all accounts. This is called the adjusted trial balance. While a small business may have a hundred or so accounts, very large businesses can have more than 10,000 accounts.
-The final step is for the bookkeeper to close the books, which means bringing all the bookkeeping for a fiscal year to a close and summarized.
It’s that time again. The year is almost done, and it’s time to take advantage of tax-planning strategies that will reduce your income tax burden for the 2019 tax year. We’ve collected the top 2019 tax-reduction strategies from our Canadian tax lawyers.
Take advantage of business tax planning strategies that will reduce your income tax burden for the 2019 tax year.
Taxpayers earning business income should accelerate and incur their deductible expenses before the year-end rather than realizing those expenses in 2020. Employees may write off depreciation on cars, planes, and musical instruments. Likewise, trades persons and apprentices can deduct the cost of their tools—to a prescribed limit.
Similarly, individuals should make their purchases now so that they may enjoy the benefit of the corresponding depreciation claim this year. Purchase your capital property before the tax year end in order to claim Capital Cost Allowance (CCA)—at 50% of full rate—this year.
An Allowable Business Investment Loss is a loss on an investment on a small business’s shares or debt. A taxpayer may deduct an ABIL from any source of taxable income. Standard capital losses, in contrast, are only deductible against capital gains.
To claim your allowable business investment losses this tax year, you must sell the investment shares or establish the investment debt as reasonably uncollectible.
A Canadian Controlled Private Corporation (CCPC) enjoys a reduced income tax rate on its first $500,000 of active business income. A bonus declaration is a key tax strategy for CCPCs with active business income exceeding $500,000. In particular, to the extent that its income exceeds $500,000, the corporation declares a bonus to its owner-manager.
This bonus must be paid and all payroll deductions remitted within 180 days of the company’s year-end. If the company fails to pay the bonus within this deadline, it cannot deduct the bonus in the year of declaration. This means that the corporation would fail to “bonus down” its income and thus incur tax at the general corporate rate on the amount exceeding the $500,000.
A business owner may pay a reasonable salary to a spouse or family member working for the business. This effectively splits income and lowers the overall household tax rate, and it provides family members with RRSP contribution room.
A salary paid to a family member employee must be reasonable given the tasks that the employee performs. In case of a future tax audit, the business owner must produce proper books and records. So, taxpayers must ensure strict compliance with the record-keeping requirements of Canada’s Income Tax Act to avoid tax problems.
A business owner may deduct business expenses of up to $500 annually for non-cash gifts given to each arm’s length employee. But if you give your employee more than $500 worth of gifts in a year, the employee must include the excess in his or her income as a taxable benefit, and you must withhold CPP and income tax on that amount. Moreover, the $500 annual allowance does not apply to cash gifts or performance-related awards.
Similarly, once every five years, an employer may deduct $500 for non-cash long service awards or anniversary awards given to each employee. The Canada Revenue Agency (CRA) requires the award to be for a minimum of 5 years’ service and, you must wait at least 5 years before giving another award to the same employee.
A compensation strategy includes a mix of salary, bonuses, and dividends. In particular, a bonus allows income—and thus the related tax liability—to be deferred until after the year-end. A corporation can immediately deduct the amount of a declared bonus if it pays the bonus within the statutory deadline. Meanwhile, the recipient only needs to report the bonus when he or she receives it, which could be in the new year. So, if arranged properly, the bonus provides an accelerated deduction at the corporate level and a deferred inclusion at the personal level.
When you borrow funds from your own corporation, those funds are included in your taxable income if the loan remains outstanding for two corporate year-ends. So, you must ensure that you repay shareholder loans before this deadline.
If you make quarterly tax-installment payments, you can avoid interest charges by making your final payment on or before December 15, 2019. Likewise, if you missed an earlier installment payment deadline, you can reduce interest by either increasing the amount of your final installment payment or paying your final installment earlier than the December 15th deadline.
Owner-employees of incorporated businesses can pursue an Individual Pension Plan (IPP) as a means of retirement saving. The IPP provides an opportunity for year-end corporate income tax deductions for the corporation’s contributions to the plan.
If you wish to claim your donation tax receipt on your 2019 income tax return, you must donate to your registered charity by December 31, 2019.
If you donate after this deadline, you will need to wait until 2020 to claim your donation tax receipt. You will also lose out on your last chance to claim the first-time donor’s super credit.
Instead of donating cash, you can donate publicly-listed securities to a qualified charity. You’ll receive a donation tax receipt equal to the fair market value of the security at the time of the donation. In addition, by donating the securities to a registered charity, you won’t incur tax on the accrued gain. (Gifting the securities to a non-qualified donee would result in a disposition at fair market value and thus a taxable gain if the market value exceeds cost.)
If you plan on donating securities—and wish to receive the tax credit this year—the transfer must take place before December 31st. As a result, you should start this process soon to allow time for processing and settlement time, which typically takes at least five business days.
You may want to consider making donations through your corporation if you own one. Individuals get donation tax credits, but corporations can deduction donations from taxable income. Moreover, donations of capital property can increase the capital dividend account of your private corporation. Your corporation can then pay this amount to you tax-free.
Note: you’ll need to compare the benefits of donating personally versus through your corporation. Personal donations might result in greater tax benefits due to the lower corporate tax rates.
You can make a donation of a whole-life insurance policy, which is a policy combining insurance with an investment fund. You donate by transferring ownership of the policy to the charity and by naming the charity as the policy beneficiary.
Generally, the tax value of the donation is the policy’s fair market value minus any outstanding policy loans. But, if the tax value exceeds your tax cost of acquiring the policy, you must report the excess as income.
After donating the policy to a charity, you may claim your subsequent premium payments on the policy as additional charitable donations.
Finally, your estate may be able to claim a donation tax credit if you name a charity as a beneficiary of your life insurance in your will. The estate can claim the credit in either your terminal tax return or your tax return for the year before your terminal year. Similar rules apply if your will names a charity as the beneficiary of your RRSP or RRIF.
The other key parts of a caring culture include nurturing employees and leaders who are straightforward, thoughtful, and resolute in their approach to the business. All my years of experience in business resonate with that assessment, and allow entrepreneurs to explain to team members what accountability means, and what steps are required to get there:
To make a real difference in your business, you need to be the role model for accountability and nurture a caring mindset across your whole business. Here are three things you need to look for:
Accountability isn’t easy. It can’t be accomplished by edict, but it can be taught through example by leaders who practice the principles they want their team to follow — leaders who build a mindset of caring throughout the organization. How long has it been since you took a look in the mirror at yourself and your organization in this respect?
Itching to make the purchase now? Go home and think about it. Give yourself 24 hours to decide if you really need the item. 72 hours is even better. You’ll save yourself hundreds of dollars this way. The impulse to buy is just that–an impulse in most cases.
If you’re an avid book reader, try a trip to the library or check out the free books on Amazon Prime or other membership sites instead of purchasing. If you’re a golfer, substitute one tee time a week for a trip to the community driving range.
The important thing is not to give up the things you like. Instead make small, occasional substitutions that will save a little bit here and there. The little things add up over time.
Whether it be Target, Amazon, or, the sporting goods store, next time you’re tempted to go shopping, just drive on by. Instead of shopping, go for a walk, grab a cup of coffee, or read a book. Or, if it’s online shopping, get in the habit of watching a favorite music video instead of shopping.
Build a new habit to replace the old one. It’s more satisfying to watch your savings account balance increase than to experience momentary pleasure from buying stuff.
In his book A New Earth, author Eckhart Tolle talks about our tendency to identify ourselves, and our self-worth, by our things. Well, you are not your things!
The sense of self-respect you get when you make smart financial decisions is worth far more than the ego-centric feeling of driving the fancy car and wearing the latest styles. Evaluate lifestyle changes you can make. It might be your house, your car, your clothes — whatever it is, downsize where you can. Being financially secure is sexy at any age.
Carpool or use public transportation once a week, or more if you can. If you’re still working, ask if you can have one telecommuting day a week. Instead of lots of trips, consolidate your errand running and plan it for times when there is not a lot of traffic. Even better, consolidate and carpool all at once by running errands with a friend!
Cord cutting is finally at a place that can make sense for most families. With a little bit of research, it can cut your bill in half.
In addition, turn up or turn off, the air conditioning or turn down your heater during the day. Yeah, it’s not quite so comfortable when you first get home, but the savings will add up.
Slash your food bill by not eating out so often. Instead, take your lunch once in a while. Before you head out for dinner, try to glance through the pantry first, and see what creative meal you can come up with at home.
If you have to eat out frequently, skip the sodas and iced teas. Drinking water is not only better for you but, for those that eat lunch out every day, this simple substitution will save well over $30 a month.
With a little effort, you can pay 20 – 50% less for most of the things you buy. Like most things in life, time is money. If you’re willing to put in the time, you can find discount codes and sales that save you money. It may take a little extra work, and quite a bit of patience, but remember, you’re getting paid for your time to avoid shopping retail with significant savings!
Warning: many people get lured into spending more because “it’s on sale”. This tactic is not to be used to buy things you don’t need. It’s a strategy where you plan out what you buy already, and find ways to get it for less.
Health and fitness should be a priority, but you don’t need a gym membership to work out. If you’re the self-motivated type, there are all kinds of fitness activities that don’t require a monthly fee. You can walk, run, do yoga at home, buy a fitness video, do push-ups, sit-ups, use exercise bands and a pair of dumbbells.
The free possibilities are endless.
Most people do something outside of their regular job as a change of pace. What if that hobby became a small business? Enjoy carpentry? Maybe look for people that need some home improvement. Decorating? Maybe you could take on a few clients as an interior designer.
Think about what you love to do and ask yourself if you could make a little extra money doing it.
A lot of us grew up with weird attitude towards money, often centered around not having enough, being jealous of those who did, or feeling shame for what we did have. When we become parents, we have the opportunity to undo that not only for our kids, but for ourselves, in the way we choose to teach our kids about money, and our attitudes towards it. As a mom of three (who is a mindset coach with a background in education), here are my top five tips to creating a healthy, balanced attitude towards money in your family’s life and culture.
We have our kids help with the activities of daily life (making beds, cleaning rooms, feeding dogs, setting tables…) because those are the necessary tasks of daily life – not because they’re going to get a reward for doing so. It’s our job as parents to guide our kids, giving them the opportunity to learn life skills along the way. Money management is one of those skills.
Consider giving your kids (7+) a small weekly allowance they can portion off into save/share/spend jars; make peace with the fact that the spend jar is theirs to spend – it is so much easier to learn the lesson of overspending, or blowing all your cash on something you didn’t need when you’re 8, versus 28.
Getting a bill doesn’t have to be the chore we assume it to be. When you think about it, bills are just reflections of pleasures you’ve already enjoyed. “Thank you, Netflix, for keeping me entertained and relaxed. Thank you, heating and water, for keeping my family cozy and clean. Thank you cell phone, for connecting me to the world (and for endless memes to enjoy, obviously).”
Sharing this attitude with your kids teaches them that everything we consume is actually an exchange of goods and services; involving them in the payment process is another incredible way to teach a valuable life skill. Kids as young as 5 can help you find the amount owed on the bill, which vendor it’s being paid to, and circling the amount, writing “paid” and on which date. They will come to love this process, as it’s a trojan horse for one on one time with you, and it becomes really fun.
It’s easy to get caught up in that old thinking that “we might not have enough,” and the feeling that what we have, we have to keep for ourselves. It’s not true; when we are conscious of sharing what we have, we are contributing to the greater good. When we show our kids to be generous (via donations, volunteering, helping other friends or families in hard times, tipping the delivery guy, you name it), we are teaching them how good it feels to give.
Anytime we do good for its own sake, we are modelling how to be a good human, and how to live with the sense that we are all connected, and we are very fortunate. That attitude alone sets our kids up to be appreciative for what they have, and to create more of it as they grow up.
We live in this backwards society in which more is considered more. So when we’re parenting, it can be tempting to give our kids everything they want, and replace it when it breaks. But really, think of the things that are dearest to you: chances are the things you worked really hard for, have a sense that you earned them, and feel a real pride of ownership over them.
Sweeping obstacles out of the way for our kids, and catering to their every whim does not raise happy children – it raises children who have a falsely entitled sense of reality, who tend to develop much anxiety in later years when they realize that things don’t fall magically into their lap without their own grit and gusto. Teach them to appreciate what they have, with modesty and grace.
Thinking rich is essential to living a rich life. Constantly living in the fear-based state of never having enough instills a fearful mindset in young children that they will carry forward with them, and have to un-do later. “We can’t afford that, we could never go on that vacation, that’s only for rich people.”
All of that language creates a false reality that money is only for select people, and if you don’t have it, you never will. In reality, anything is possible – anything. And we can teach our kids to use that lens by involving them in planning and dreaming. Always wanted to go to Costa Rica and stay in a tree house (so. Much. Yes)? Start a family vision board for that trip. Look up cool places to stay, airlines to use, monkeys to mimic.
Involve your kids in using some of their own savings to put towards the trip. Make them feel a part of it – and give them the sense that they have ownership in making it happen. This is a hugely empowering pattern of thinking and behaving; much healthier than the attitude that “that’s not for us.”
Our children pick up our words, though, and behaviours, and all the patterns that go along with them – often without us noticing. Being open to shifting your own attitude towards creating wealth in your own life is one of the best gifts we can give our kids, and that starts at a very young age.