Deducting Accounting and Tax Preparation Fees

Let's be perfectly clear - no matter what your political affiliations might be we can all agree that we hate paying taxes.

Whether it is your personal income or your businesses income, writing out that tax check can be extremely painful. That's why we look for ways to reduce them, especially deductions. Anything to lessen the tax burden is a good thing but what about getting those tax returns ready in the first place?

With tax codes being what they are, it's not easy to make sense of all the rules and regulations.

That's why we need a little accounting help every now and then. Can you deduct those tax preparation fees? The short answer is "Yes." But as with anything to do with the government, there is always a "catch."

Tax Preparation Deduction for the Business Owner

As the owner of a business you are eligible to deduct your accounting fees and tax preparation fees as a typical cost of doing business. Look for T2125 Statement of Business Activities and Line 8860.

This would be the fascinating "Legal, Accounting and other Professional Fees" category on your tax return. From the CRA tax code itself comes this official eligibility requirement:

"1. Except where there is a specific provision in the Act dealing with legal or accounting fees…, legal and accounting fees are deductible only to the extent that they:

(a) are incurred for the purpose of gaining or producing income from a business or property, and

(b) are not outlays of a capital nature."

Make sense?

Here's the translation: If you paid those fees in order to make more money for your business then they are deductable. How can there be any other reason for accounting but to make money? That would be with personal income situations. As far as the government is concerned, the T2125 form is just one piece of the total tax return puzzle. The rest of your personal income tax return has nothing to do with making money for your business therefore any money spent preparing those returns aren't deductable.

The Work Around

Yes, you would have to separate the accounting fees even if you're using the same accountant but your accountant should know this. One way around this deduction is for your accountant to assess 100% of their fees for your business returns. Then they would do your personal returns for "free." Who can blame them for spending all the time and effort on the business returns?

DIY Tax Returns

If you prepare your own taxes then you might be able to deduct the cost of software as part of the office expenses on the T2125 form. Again, this is only for business owners. As a regular employee who does their own taxes, you won't be able to make the deduction.


Another great reason for starting a business: More tax breaks!

How to Pay Yourself as a Business Owner

You've worked hard to start your business and are certainly entitled to a paycheck. The question then becomes how best to pay yourself as a business owner. You essentially have two options: salary or dividends.

There are pros and cons with each method.

The best course of action will depend on your personal and business finances. Here are the factors to consider:

Paying Yourself a Salary

When your business pays you a salary it is considered personal income which means you'll have the opportunity to contribute to the Register Retirement Savings Plan (RRSP) and the Canada Pension Plan (CPP). How much you put into the RRSP is up to you.

However, there are maximum contribution limits. The CPP is an automatic deduction which can set up for a nice retirement fund.

In other words, the longer your work and pay into the CPP the more of a "nest egg" you'll have upon retirement.

With regard to taxes, when you pay yourself a salary, the corporation can deduct it as a business expense. On the other hand, as personal income, it is subject to taxes.

How big do you want your tax burden to be? That could determine whether or not you pay yourself a salary. 

Taking payment as a salary means you have to set up a payroll account through the Canada Revenue Agency. This means filling out T4 slips and the rest of the required paperwork. Another tax issue with a salary is that you won't be able to mitigate a business loss if your profits go up and down over the course of several years.

Paying Yourself Dividends

You'll have more cash on hand with dividend payments because they are taxed at a lower rate and don't have any automatic deductions taken out for the CPP. It's also very easy to pay yourself in dividends. Just write a check and square it up with the accounting.

By taking dividend payments you are essentially saying you'll be handling your own retirement. Not only would your CPP be less but you are prohibited from making contributions into an RRSP. If you take dividend payments you could also be precluded from taking additional tax deductions such as childcare expenses.

Overall you need to consider your company's cash flow needs, not only for current business, but also down the road. A qualified financial planner should be able to look at your business and help you make a decision that will provide you and your business with a decent level of financial security.

Areas of Potential Liability for Website Owners

When was the last time you read the fine print on the terms and conditions of a website? Most of us don’t take the time to read them, finding the legalese too boring. We just click "I accept" so we can get to the good stuff.

However, as a business owner you don't have the luxury of skipping over that fine print. In fact, those terms and conditions might actually become your strongest defense against frivolous litigation.

This is why companies invest in experienced legal counsel to craft liability language. This will make sure your business is protected even from the casual visitor who might have "issues" with your website content. The goal is to reduce the possibility of a lawsuit.  

Here are some things to consider adding to your own terms and conditions to afford any potential liability claims.

Protect your data. If you intend to sell your email list to a third party (it can be a good source of revenue) then you need to be protected with a strong "personal information" provision that spells out your intentions. Even if you don't plan to use that information you still want to be protected in the likelihood that the data is compromised.

Errors and omissions. This is a clause that is include in most business contracts but should also be included on your website. Suppose you post content with facts or figures that prove to be inaccurate or become out of date? Hopefully, you can correct that when notified but until then you shouldn't be held as negligent for a simple oversight.

Unknown malware. There is no telling if or when your website could be attacked by an outside entity until it is too late. If a visitor picks up a "virus" by visiting your site should you be held responsible? Not if you have the right kind of language in your terms and conditions.

Transmission problems. If your server goes down and a customer's own business or service is interrupted, you shouldn't be held liable. Crashes will happen and you'll need to be protected especially when the loss of data could occur.

Copyright infringement. You should do your best not to engage in any copyright infringement but that doesn't mean it can't occur. Suppose you have a forum where a user posts something that is protected. Are you liable? What if someone considers material as defamatory? You can't predict everyone's reaction to all that you'll be posting but you can protect yourself from those reactions.

Confiscation of data. There may be instances where a user's personal information is subjected to foreign government control. In the U.S. there are many heated discussions about this very issue as it pertains to investigations sanctioned by the Patriot Act. You can let your users know they might be subjected to these types of date mining through no fault of your company.

Fortunately, businesses have worked out many of these issues in their own terms and conditions language. You can take advantage of that by obtaining boilerplates of these provisions. You'll still need a lawyer to review them before you post on your website but using boilerplate language can reduce the costs of writing up this liability protection. 

Success Is All About Attitude

Can the success of your business really come down to a matter of a positive attitude? According to many professionals the answer is an unequivocal yes!

Call it optimism. Call it enthusiasm. Call it "glass half-full."

Whatever you call it, having a positive attitude is also extremely infectious. This kind of attitude can have an impact on your customers and your staff. Who do you want to work with? Who do you want to do business with? How can you have a positive attitude? Consider these insights:

You Create Your Attitude

Believe it or not, the power to cultivate a positive attitude rests within you. No matter what might come your way, you have the opportunity to frame your reaction. Think about opening presents on your birthday. You could say, "That's not what I really wanted." Or "It's about time you got me a present." Or you could say, "I'm really touched that you thought about me." Here's a hint: the last option is framing that event with a positive attitude. The next time a crisis happens at work, no matter how big or small, stop before you react and figure out what would be the positive approach to that situation. By doing that you're taking charge of your attitude.

Focus on the Positive

What do you surround yourself with as you start your day? Is it the local news full of disasters? Is it websites with divisive commentary? Take a break from the negative and choose to focus on the positive. Even something as simple as a daily affirmation calendar can put you into a good mood. If all else fails, spend time watching cartoons with the kids. You can't really get angry if SpongeBob is starting your day.

Shut Down the Complainers

Do you know someone who can suck the energy out of a room with their negative attitude? Clearly, those folks need to read this blog post! Short of that, you might want to try and avoid those negative persons. At the very least you should only take them in small doses. As a manager is it your responsibility to stop that negativity before it can spread like a disease through the rest of your staff.

Choose The Right Words

What is your first response when someone asks, "How are you doing?" Is it, "I'm hanging in there" or a "meh?" That's not a positive response. Next time somebody asks them them, "Outstanding" and mean it! Yes, it can be as simple as flipping a switch. Change your attitude and watch your business change for the better. 

How to Understand Canadian Small Business Taxes

Starting a small business means you’ll have the opportunity to become your own boss and make some of your dreams come true. It also means you’ll have to pay business taxes. For some small business owners paying taxes turns that dream into a nightmare. There are numerous resources you can tap into that can guide you through the completion of the tax forms if you decide to make it a DIY project. Many business owners prefer to bring in outside help like an accountant or tax attorney. Whichever option to choose, it will be helpful to begin with a basic understanding of small business taxes.

What Type of Business Are You?

Entering into a business means you have to pick which type of business you’ll be operating as. Your choices are:

1)      Sole Proprietorship

2)      Partnership

3)      Corporation

A sole proprietorship means you are the only owner and you’re not incorporating your company. With a partnership, there will be at least two owners (could be more) who contribute to the business. Any profits you make in a partnership will be divided based on the rates established in your partnership agreement. A corporation is a standalone legal entity that is allowed to sign contracts and own property. Many business owners choose the corporation option because it provides a level of protection for personal assets. In other words, if your corporation is sued then only the corporation’s assets are in play.

What Are the Filings Dates and Forms?

As sole proprietorship business owner you will be filing a personal income tax just as you would if you were working for someone else. You’ll pay taxes on all your business earnings that will be included on the T2124 Statement of Business Activities form. The fiscal year for a sole proprietorship ends on December 31^st. If you want to select a different end of the year in fiscal terms you’ll need to use form T1139. With the December 31^st end you’ll need to file by June 15^th.

With a small business partnership, the partners will file their share of the business earnings on their individual tax returns. The same filing deadlines as the sole proprietorship business apply.

A small business that has incorporated will use form T2 for corporate income taxes. That form needs to be filed within six months of the end of the business’ fiscal year. All tax forms for any type of business need to be kept for six years.

What Are the Earnings and Expenses?

Here’s where it gets a bit complicated. When a business records any type of earning or expense they need to use the Accrual Method. Translation: You’ll record revenue when you have delivered the good or service not when you’re paid for it. Same for expenses; you record when you incur the expense, not when you pay for it. This is why thorough record keeping is so essential for a small business. To make a business expense deduction, you need to prove that whatever you purchased was used exclusively by your business. As for earnings, that is considered as any money you take in that is a result of your business services.

Are you Ready to Quit Your Job and Start a Company?

So, you’ve got a great idea for a business that you’re eager to pull the trigger on. One potential obstacle: you’re working in a job now and unless you quit you can’t get your start-up going. What do you need to do before you quit your job and start a company? Think about these issues before taking the plunge:

1.      Money Coming in Versus Money Going Out

Only you know what you need to survive on in terms of income. Many new business owners often forgo a salary until their new venture is on stable footing. Can you survive without a steady paycheck? Don’t imagine what you’ll be making; be realistic about what you’re making now and what you can anticipate making two weeks after you’ve quit. The harsh reality is you’re probably going to take a salary hit in terms of reduced weekly take home pay. Can you survive with that?

2.      Business Plan Projections

What does your business plan say about generating income? If you don’t have a business plan, then you’re really not ready to quit your job! A properly prepared business plan will become your road map for success. If you have used realistic projections then you should be able to gauge when revenue will start rolling in. More importantly you should have a contingency plan ready to activate if those projections don’t hold up.

3.      Emergency Capital

Your contingency plan should include a kind of “rainy day fund.” This should be additional operating expenses you might require to keep your business running should you experience a downturn in the first couple of weeks or months. Quick example: You’re starting a business selling beach umbrellas but on opening day it begins to rain for two weeks straight. Will you have the money to pay your bills while you wait for the sun to shine?

4.      Family Support

You can never underestimate the need for family support when you open up a new business. You’re going to be asking for a lot of sacrifices from your family as you devote long hours to make sure your business is running properly. If they’re not as committed as you are to this start up then you’re going to have added stress which isn’t going to do anybody any good. This kind of support is critical when you are making the transition from one job to another. They last thing you want to ever say is, “Surprise: I quit my job!” Major decisions like that should be made in partnership with your family.

How to Manage a Business and a Marriage

The goal of becoming a small business owner is to build your business to a level so that you can provide financial security for yourself and your family. That is one of the reasons as to why you enter into business. In many ways, you work hard now so that you have you can have fun later. Unfortunately, that message often gets lost - especially with new start-ups as more time is devoted to the management of the company and fighting fires. Most importantly, your relationships, especially your marriage, often get neglected.

In many cases, marriages break down because one of the partners spends too much time at work. It doesn’t always have to be that way. Just as you have spent time in writing your business plan, you should also spend an equal (if not more!) amount of attention to your marriage. Here are some tips to help you maintain a successful business and marriage.

1.      Make A Plan

Scheduling out every moment of your life sounds a bit obsessive. But if you can find a way to schedule most of your waking time and stick to that schedule it could pay off in the long run. What you should do is to schedule in the times during a day where you would spend working, and the time where you would relax with your family. For example – highlight in your calendar:

·         The hours 9 am to 5pm for your business

·         And the hours 6pm to 10pm is to be spent with the family

If you can stick to your schedule then you’re ahead of the game. However, to be more productive you need to be ruthless in cutting out non-essential activities that cut into your schedule. During your work hours you want to be completely focused on the tasks at hand. If you schedule time for a special dinner date with your wife/husband or coaching soccer practice with the kids then you should be equally focused on that time – and that means not taking work related calls! It all comes down to matter of good time management. So, be obsessive with your scheduling your day.  

2.      Create Quality Time

Just because you set aside time for “date night” or “family fun” doesn’t mean the work is over. You need to put some effort into creating quality time for those special events. Yes, you’ve spent all week up to your eyes in meetings, conferences and reports. The last thing you want to do is figure out where to go to dinner! Well, going that extra step to take charge will show you really do care about your relationship. It’s simple. Let’s say you have a date with your wife, here’s what you do:

1.      Pick your top three restaurants.

2.      Send an email or text message to your significant other asking them to make a top pick and you’ll handle the rest.

Don’t stop at just dinner. Plan ahead for a romantic weekend getaway, a night at the theatre, or a beach day. If you are really busy, you can hire a virtual assistant to help you make reservations or organize your week. It takes zero effort but holds the promise of great rewards.

3.      Keep the Lines of Communication Open

This is crucial for a marriage whether you own a small business or not. The old adage of “don’t go to bed angry” makes a lot of sense but hopefully you’ll find a way to work out your problems before you make it to the bedroom. Most issues with communication have less to do with what you’re saying as opposed to what you’re hearing. Genuinely listening to your partner’s concerns and applying empathy is crucial to keeping those lines of communication open. When you can put good listening skills into practice, you should get the same in return. That’s going to mean all the “channels” will be open and clear for a success marriage and business.

How to deal with stress when starting your small business

Congratulations! You’ve just got your brand new small business up and running. It took a lot of hard work and planning but you can finally see your dreams coming true. Does this mean that all the stress associated with your start-up is now over?

Sadly, not likely.

As you settle into the routine of operating your small business you’ll be introduced to a whole new set of potentially stressful situations. Number one is family-related stress - the concern that you’re spending too much time at your business and not enough time with your family. Finding a way to strike that balance might be the key to alleviating that stress. Don’t let the excuse of “I don’t have the time” stand in your way. Make the time!

Other than family, here are some more stress busting tips you can start using today:

·         Get Physical: As in exercise. If you didn’t work out before you started your business then this is the perfect time to start. Join a gym and devote some time to sweating it out. This doesn’t mean turning into a gym rat but even a 30 minute cardio workout 3 times a week can help loosen up your muscles and clear your mind.

·         Have a Laugh or Cry: Bottling up your emotions is not healthy. That holds true whether you’re a business owner or not. Watching a funny movie and allowing yourself to laugh is going to release certain chemicals in your brain which will generate good feelings. It’s like giving your brain a “break” from all the things it has to deal with. Likewise, crying can also be stress reducing. This doesn’t mean standing in the middle of your business and breaking down in tears. However, if you can find a quiet moment and the tears do come, let them flow freely. You’ll feel better!

·         Stay Organized: As you embarked on your small business start-up you probably put together a business plan. You need to apply that same level of organization to your new day-to-day routine. Yes, there will be the occasional time which will cause you to deviate from that plan but having structure allows you to be flexible. Perhaps the most important “meeting” on your daily schedule is dinner with your family. That’s one item you shouldn’t neglect.

·         Treat Yourself: Being a business owner means you are suddenly in charge of a lot of people’s economic well-being. You’ll be constantly tending to your staff and your clients. But what about you? Often stress builds up as a result of not taking care of your own needs. As you plan out your week, carve out some special time to do whatever it is that brings you pleasure. It might mean going to the movies alone or spending time in the garden or just sitting by the shore watching a sunset. Whatever that moment is, include it in your schedule. Don’t wait for stress to overwhelm your life.