5 Income Tax Tips from the Trenches

It is the time of year when many accountants and tax preparers live, breathe, eat and sleep taxes (leaving very little time to write about them!).  And while much of it is routine, there are numerous issues that arise, the treatment for which is not immediately apparent and can actually be quite interesting (perhaps more so to a tax nerd), some of which are compiled below:

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24 Cost Effective Ways to Promote Your Small Business

 

After thinking long and hard you have decided that is time to launch your own business.  You have a great product or service, you’ve come up with a compelling business name, all the paperwork has been filed and you have picked out the perfect location (or setup a snazzy new home office).  Everything seems to be set for your new independent life as a business owner.  And then you realize that nobody except your spouse and cat knows about your new venture.   So, how do you bring your fabulous new product to your target market's attention?  One way is to use the “build it and they will come” approach.  This is usually not particularly effective (even Google, who historically launches products with little fanfare, could benefit from a little more marketing).  The other, more effective approach is to get out there and promote your business.  Of course in the initial stages, marketing budgets tend to be miniscule.  On the other hand, many new business owners have time on their hands, while they wait to be deluged by orders.  Below is a list of 25 cost effective ways to promote your small business:

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To Inc. or Not To Inc.

The decision to incorporate is one that most small businesses face at some point in their lifetime.  Incorporation, literally, represents the creation of a new person.  Whereas a sole proprietorship is an extension of one's self, a corporation takes on a life of it's own; it can give birth to subsidiary, marry via a merger and die with a dissolution.  It has to file it's own tax return, can be sued and has a set of rules that govern it's existence.  Below are some of the points to consider when deciding whether to incorporate:

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9 Year End Tax Planning Tips for Small Business Owners

As the end of the year draws nigh, it is time for business owners everywhere to start contemplating some end of year tax planning tips to not only ensure that they can maximize their tax deductions and reduce taxes payable, but to streamline the tax filing process in the New Year.  Even if you are incorporated and your year end date is not December 31st, it is a good time to take advantage of calendar year deadlines for personal tax planning purposes.

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7 Qualities of Highly Desirable Clients

“I want to create a rival to Twitter. So I want it exactly the same except where it says What’s Happening? I want it to say How are you feeling?”(From the very funny "Clients from Hell")

This pretty much sums up the type of client we don't want - ridiculous expectations, unimaginative and just plain clueless. Conversely, there are some clients that are a pleasure to deal with.  Ones that ask great questions, and make us feel happy to have chosen the entrepreneurial route.  The more important of these are listed below:

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GST and QST Considerations For New Business Owners

The Goods and Services Tax or GST is a consumption tax that is charged on most goods and services sold within Canada, regardless of where your business is located.  Subject to certain exceptions, all businesses are required to charge GST , currently at 5%, plus applicable provincial sales taxes.  A business effectively acts as an agent for Revenue Canada by collecting the taxes and remitting them on a periodic basis.  Businesses are also permitted to claim the taxes paid on expenses incurred that relate to their business activities.  These are referred to as Input Tax Credits.

Does Your Business Need to Register?

Prior to engaging in any kind of commercial activity in Canada, all business owners need to determine how the GST and relevant provincial taxes apply to them. Essentially, all businesses that sell goods and services in Canada, for profit, are required to charge GST, except in the following circumstances:

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How to Set Up a Small Business Accounting System

Many small business owners (including myself) tend to focus on the more glamourous aspects of their business like sales and marketing and product/service development.  As a result, accounting (poor misunderstood accounting) does not get the attention it deserve.  In addition to the perception that an accounting system does not necessarily add value, they can also be a little intimidating.  However, setting up an accounting system does not have to be complicated and should be considered essential for any small business or self employed owner (the reasons for which will be covered in my next post). A good software tends to handle most of the complexity of accounting as long as the data is entered accurately.

The primary steps in setting up an accounting system are represented below:

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Breaking Up with a (Likeable) Client

Many of us have clients who are annoying, cheap, stupid , high maintenance or some combination thereof.  As a new business owner, we are often stuck with these clients because we need them.  However, we look forward to the day when we will have the thriving business that we so deserve, and fantasize about the spectacular way in which are going to fire them (you can shove your business into your rear orifice etc.)  This is actually a productive fantasy as can help to channel and concentrate anger.  Of course, in the majority of cases, a firing should be conducted with slightly less vigour.

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7 Measures in the 2013 Federal Budget that Affect Your Small Business

While the Federal 2013 budget or the (more interestingly named) Economic Action Plan delivered on March 21, 2013 was not earth shattering in any way, it is interesting to note how well Canada is performing relative to other countries in the G7.  According to the EAP, The Canadian economy has experienced the best performance among the Group of Seven (G-7) countries over the recovery, with the strongest record of economic growth and job creation.  950,000 jobs have been created since July 2009, the majority of which are full time positions in high wage industries. Additonally, Canada is only G-7 country to also have more than fully recovered business investment loss during the recession.  And although the recovery has been broad based, investment in the manufacturing sector has been particularly strong.

The EAP also notes that while GDP growth over the next five years remains unchanged, expected growth for 2013 has been revised to 1.6% down from 2.0%.  This will be offset by higher estimated growth between 2015 and 2017.  Consequently, economists expect lower inflation in 2013.  The CPI inflation in January 2013, compared with the prior year, was 0.5% while inflation for all of 2013 is expected to be lower than average at 1.3%.   They also expect that the Canadian dollar will remain at par with the US dollar.

The 2013 budget introduces and extends certain initiatives for small business, while also impacting taxes payable for small business owners:

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Tax Tidbits for Small Business Owners: Hiring Credit, NAICS Code and EI Contributions for Corporate Owners

It can be difficult for small business owners to keep on top of the myriad of tax rules, interpretations and changes.  Whether you depend on your accountant or take a more active role in the administration of your business, being aware of the rules can help save you money, time and the displeasure of the revenue agencies  .  Below are some tax issues that have come up recently for my clients.
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Information on Filing T4s/RL-1s and T4As for Small Business Owners

When I was employee I never really gave much thought to the T4 (and the Quebec equivalent RL-1) process .  I suppose I expected that someone, somewhere pressed a button and they would magically appear as an envelope on my desk.  As I transitioned to being an independent small business accountant, who was now responsible for preparing this information and providing guidance to my clients, I realized that the process was somewhat more complicated.  Luckily there is software and a variety of resources to help you with the process.  
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Guidance on QST Change in 2013 and Updating your Accounting Software

For the third year in a row, the Quebec Sales Tax (QST) will be changing.  Fortunately, the change is not to the rate, which effectively remains the same, but rather an effort to harmonize the QST with the GST. Consequently, the most significant change is the method by which the rate is calculated.

In the past, the QST used to be calculated on the total sale plus GST.  As a result the published rate was 9.5% while the effective rate was actually 9.975%.  The harmonization of the GST and the QST requires that the QST be charged on the sale amount only, without the GST.  As such the published rate and the effective rate will both be 9.975%.  This is illustrated below:

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10 Year End Tax Strategies to help Small Business Owners Improve their Bottom Line

Ready or not, the holiday season is upon us and the end of the year is fast approaching.  While it is quite a nice time of year (cold weather notwithstanding) there are many additional stresses –purchasing the perfect Christmas sweater, managing the logistics of family holiday time, making travel arrangements, all while trying to not to gain a million pounds.  This can be especially trying for the small business owner, who in addition to managing their business and the holidays, must carve out some time to ensure that there are ready for year end and maximizing their tax deductions while also planning for next year.  To help ease the stress I have compiled a list of tax tips to contemplate:
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4 Simple Financial Analyses to Help Measure the Success of Your Small Business

As the year draws to a close, many small business owners are taking stock of their business, basking in their successes and trying to comprehend their mistakes.  Unfortunately a big picture view does not always immediately reveal itself– a thorough understanding of your business requires at least some analysis and introspection.  You may be tempted to look at cash (or lack thereof) in your bank account or your net profit , however these are not always reliable indicators of success or failure , particularly when taken in isolation.  Every small business owner should identify the specific needs and constraints of their business to determine the optimal analysis  required to assess its financial performance.  Some general analysis that most businesses can benefit from are presented below:
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What Small Business Owners Need to Know About Income Tax Instalments

One of the more difficult aspects of the transition from employment to small business ownership is having to cultivate a whole new level of discipline.  You can no longer rely on your employer to take care of business obligations that do not relate to your job ,and must take a much more active role in ensuring that you remain on top of your business obligations whether it is collecting payments from customers, paying bills or ensuring that you do not run afoul of Revenue Canada.  One of these obligations is that you are now responsible for remitting your own, which is done via the mechanism of instalment payments.
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Small Business Survival Statistics and 9 Steps to Improve your Chances of Sticking Around

The temptation to start a small business or venture into self employment can be strong particularly for those who are unhappy with their existing employment situation.    The freedom and flexibility that being your own boss seems to offer can be seductive, as is the potential for growth which you, as the business owner, can have full control over.  You may have an idea or a particular skill that you believe is desirable to a specific target market and you are confident that once this target market is aware of your existence they will all be banging down your door.  Consequently, you start your business by offering an amazing product or services, only to realize that building up a customer base is more challenging than you thought.  Additionally, there are a number of other obstacles for which you do not have the expertise (done by another department when you were an employee) whether it is marketing, website development, legal research and accounting.   Finally, you realize that you actually need a fairly sizable source of cash to maintain the business, deal with growth opportunities, whilst ensuring that you are able to support yourself.

The chart below, published by Statistics Canada available Key Business Statistics – July 2012 (this seems to be the latest data that is available), demonstrates the percentage of small and medium sized enterprises (SMEs) that actually survive over a five year period.

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CJAD Finance Segment with Tommy Schnurmacher – Everything You Want to Know about Small Business

Last Tuesday (August 7th) I was invited to be on Tommy Schnurmacher ‘s weekly finance segment on CJAD. The topic of discussion was “Everything you wanted to know about small business but were afraid to ask”.  It was a lot of fun and although I did not get to cover everything that you would want to know about small business in the 17 minutes that we were on the air, we were able to present some useful information to potential small business owners and fielded a few interesting questions.   Below is a recording of the interview followed by a brief discussion of the points covered and relevant links:
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Are Clothing and Other Personal Attire Costs Tax Deductible?

The fundamental rule for deducting any type of expense from your business income is to determine whether it was incurred for the purpose of earning income:
No deduction shall be made in respect of an outlay or expense except to the extent that it was made or incurred by the taxpayer for the purpose of gaining or producing income from the business or property
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3 Invoicing Options for Small Businesses and Freelancers

If you are running a business of any size, it is essential that you have a system in place that allows you to get paid.   A system can range in sophistication from a handwritten receipt to a software generated invoice which is part of an entity wide CRM system.  To meet this need there are countless invoicing solutions available and many billions of dollars are spent annually on setting up systems to meet each business’ unique needs. 

Almost all accounting software geared to small business owners and freelancers have built-in invoicing modules that integrate with your accounting.  This is very useful when doing your books as you don’t have to worry about entering your invoicing manually and it allows you to track your accounts receivable and deposits into your bank account.  There are also invoicing solutions that are not full-fledged accounting systems; however they usually integrate with the more popular software.

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6 Strategies to Maintain your Sanity during Busy Season

Accountants across the world right now are mired in tax preparation madness, as they try to deal with the myriad of work that needs to be done before tax filing deadlines.  The period between January and April is universally referred to as busy season, a term which inspires dread and tests the mettle of even the most ambitious and hardworking accountants.  Of course busy season is not specific to accountants.  Retailers experience it during the lead up to Christmas while the hospitality industry tends to be busiest in June and July (Montreal’s grand prix weekend is both a boon and a logistical nightmare for hotels and restaurants).  In fact most small business owners have periods when they are swamped, which can be problematic if they are not able to handle it.  In the interest of avoiding premature hair loss and ensuring that your business continues its unabated growth, below are some simple, yet fundamental strategies, to help you cope:
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