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WHY
SHOE-BOX ACCOUNTING DOESN'T PAY
By
Frances McGuckin
Here's
some tips for small business owners
who are unclear of how some of their
expenses are calculated, or for
those who try to slide in every
expense possible as a tax deduction
without really studying the whole
picture.
When
a tax preparer or accountant is
presented with income and expenses
from a small or part-time business,
they will question certain expenses,
however, they are not auditing your
books, and it is not their job to
do so. Anyone can claim any amount
of expenses, but they have to appear
legitimate and in line with the
type of business, or one day, that
phone call from the tax audit department
will happen.
Many
small businesses use a residential
phone line for calls, but include
the full cost of the telephone account
in their expenses. The residential
line rental is not a deductible
expenses, only long distance calls
made to clients, which should be
calculated each month along with
the applicable taxes. Excessive
telephone bills for a small business
with a residential line will no
doubt look a little fishy to the
tax department.
Then
there's the mountains of "promotional"
meals claimed by small businesses.
These meals shouldn't consist of
taking the family out for pizza
or Chinese food-each receipt should
contain the client's name, and ideally
match the appointment time in your
Daytimer. I have seen the tax department
audit a client's excessive meal
claim years ago, and insist on reviewing
their appointment book to match
each receipt with an appointment.
Needless to say, the client was
not a happy camper after it was
all over. Remember, Revenue Canada
has the time and patience to do
this tedious auditing, at the taxpayer's
expense. They are the Sherlock Holmes
of the shoe-boxes.
Use
of your home as an office is based
on the business usage of the home,
based on the total square footage.
You should have a specified office
area set aside, and keep all receipts
for home repairs, all utility, insurance,
tax and mortgage interest. Keep
the square footage realistic and
don't claim an excessive area if
you aren't using it for the business.
When
the whole picture is put together,
you should have a realistic statement
of income and expenses that reflect
the true cost of running your business-not
just a pile of over inflated expenses
to reduce your taxable income.
This weekly 'Business Concerns'
column is available for Syndication.
Please phone or e-mail inquires
to contact@smallbizpro.com
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