One of the biggest advantages to operating your own business is the ability to claim expenses incurred when you file your taxes. You can do this because the government wants to encourage you to open your own business; the more people who can do this, the more employment opportunities for Canadians of all stripes. The downside to this is you must be a meticulous record-keeper; if you’re going to claim something, you better be able to show that it’s an eligible expense. In the same vein, it’s much easier to file your income tax when you’re employed, but filing your income as a business requires that you demonstrate all of your gains and losses for the year.
Anytime you buy something you might claim, you want to keep a record of it; this record is often in the form of a receipt. These receipts should contain the name of the buyer, the name of the seller, the amount that was paid, the date of purchase, and any applicable GST/HST number. Sometimes, receipts won’t have all of that information; if they don’t, write your own record to accompany the receipt, and make sure that record contains the missing information, as well as the purpose of the purchase. Back in the day, this information would be stored away in a folder marked “Expense Records” or some such thing; while you can and should still do this, you’ll also want to log a digital copy. Digital copies are useful for reasons we’ll discuss shortly.
Income records mean gross income records; receipts of transactions before any deductions or expenses are applied. These are much like the expense records, but in reverse; date, amount and source must be logged. Income records might include sales invoices, receipts from retail transactions and bank deposits. Much like your expense records, these should be logged both in a folder and with digital accounting software.
In this day and age, it’s incredibly important to have digital software to help you keep your records. With this software, it becomes much easier to sort through files in order to find exactly what the CRA is looking for. Given that you might have to log every expense from fuel to deductions for a home office, good record keeping is essential. You should have a naming scheme for all of your expenses; having the same name for every expense but varying the date and time in the filename is a good way of doing this. Have a high quality scanner to ease the digitization of your records. Your physical folders should have tabs for all your common expenses, and the files should be sorted chronologically.
All of this can be difficult to handle, especially if you’re not the meticulous, accounting type. Fortunately, Compass Accounting can help you with bookkeeping; and we will be able to recommend more comprehensive organizational tips and software recommendations depending on what type of business you own.