Freaking out over tax time? Are you super organized, or did you leave it until the last minute? Check out these taxerrific tips to take the stress out of the yearly accounting ritual we all love to hate.
1. Hire yourself!
Tim Cestnick is one of our favourite writers when it comes to finding ways to save at tax time. In one of his recent articles for The Globe and Mail, he calls self-employment “the last of the great tax shelters.” Once you’ve got an idea you can convert into a business, you can add up savings through deductions for legitimate business expenses. These include: advertising, memberships, subscriptions, licenses, office supplies, home and car expenses (the portion you use for business), and client meals. If you incurred a loss from self-employment this year, you can carry it back up to three years to apply against income earned previously. (This is called a “request for loss carry back” and requires a T1A form.)
2. Set up and properly label your files
Preparing for tax time takes organization. You’ll need to have an accurate record of all income you received, slips from your bank on RRSP contributions you made, receipts from any charitable organizations you donated to, as well as receipts for all business expenses. If you’re familiar with productivity guru David Allen, you probably already own and use a labeller for organizing your paper files. If not, now’s a good time to invest in one (and yes, the cost is tax-deductible if you run your own business). Keeping active, well-labelled files for all income, deductions, and receipts throughout the year makes doing your taxes a lot less stressful when the time comes to file.
3. Clear out the clutter
If your office looks like you left the window open on a windy day, tax time can be an opportunity to sort through and consolidate all of your paper documents. According to the National Association of Professional Organizers (yes there is such a thing) the average person loses 4.3 hours per week searching for papers. While you’re gathering up your tax-related documents, decide what you need to keep and what you can safely get rid of. If it’s important enough to keep, scan it so you can save a digital copy. This can also protect your document and prevent information loss (try reading a faded paper receipt from four years ago). Make a habit of scanning important documents to prevent piles from building up in the future.
4. Backload any upcoming major purchases
While it’s too late to take advantage of this tip this year, file it away (in a folder labelled “Tax Tips”) for next year. If you’re expecting to have to make any large purchases for your business (like replacing your printer, buying a scanner or upgrading your computer) make the purchase before December 31, even if you’ll only begin paying it off as of January. This way you can put the expense against income you’ve already earned, reducing your tax load for the current year.
5. Watch out for unintended capital gains on currency
If you earn some or all of your revenues in a foreign currency that has appreciated vis-a-vis your own, watch out for any unintentional capital gains. For example, if you’ve stashed away $100 USD from your business activities in one year (worth $116 CAD at the time) and then converted the money into CAD the following year (now worth $138 CAD), you’ve made a capital gain of $22 on which you’ll have to pay capital gains tax. Speak with an accountant if this applies to you.
Preparing for your taxes can be a dreaded and anxiety-inducing experience, but applying a few of these tips can eliminate some of the stress. So, take the time this year to develop new, more effective workflows that will keep you organized. We can’t promise doing your taxes will ever be fun, but it might feel a little less like pulling teeth next time around.Posted on in Business Solutions, Tips & Tricks | 0 comment(s)