LIFE'S BIGGEST EXPENSE NEXT TO CHILDREN -- TAXES
The wealthy understand the tax system or they hire someone else to look after their taxes.
I hope to be able to convince you that you will not only pay fewer taxes but perhaps none at all. This is to help you to not only understand partially how to use deductions to reduce your taxable income.
To help you understand how, I will attempt to keep the information in a simple format. The tax reducing strategies noted here can be used by almost anyone, will help to create some savings, and are understandable by almost everyone that reads this.
The amount of taxes paid has little to do with the total income and a lot to do with your knowledge on how to reduce the taxes. A good plan helps to decrease your taxes. You must be able to increase your disposable income by reducing your taxes legally.
Learn something about the system that can help you save on your taxes; it is amazingly easy to do. Often you may hear someone saying that what they are purchasing is a deduction. If you can't have a particular deduction the tax department will correct it and let you know that you can't have it. The most you could lose is a little interest on overdue tax if a deduction is disallowed. As long as you are not directly hiding your income or claiming for things that don’t' exist or relate, then you are not doing anything wrong. What is in this document has been used by thousands of Canadians every year to reduce the taxes they pay.
If you understand the terms of the tax system, it will help you to apply the principles within this document. Many people erroneously believe that if they earn more money, they can actually end up with less money. The tax system is graduated. It is true, the more you earn the more taxes you pay, but only a higher percentage from the portion that falls into the higher scale.
There is no better way to create tax deductions than to own your own business, small or home based business that is. I am going to deal more with starting a part time or full time home based business and what you can or cannot use as deductions.
PERSONAL PROPERTY
A lot of the things that are considered personal property are claimed as deductions in a small business. A home based business can be either in one persons name or in multiple names. If there is more than one person in the business then each person is given a percentage of the business. It is recommended though that the business be registered, and yes, all of the expenses in doing so are tax deductible.
VEHICLES:
A car may become no longer a luxury but a necessity depending on what the business is. In this case then the appropriate insurance must be put on the vehicles that are used for the business. Here in Manitoba, you need to have the All purpose or business insurance to claim any deductions at all for your vehicles. Pleasure insurance will not be deductible. All the expenses for the vehicle, including interest on the loan payments, are a tax deduction. If the vehicle ends up being used only say 50% of the time for the business then only that portion may be used of any of the expenses.
Of course, receipts must be obtained for any expense that is going to be used as a deduction. No receipt, no deduction, it's as simple as that. Along with loan payment, interest rates there are also parking fees, washing fees, vehicle up keeping of any sort to keep it in tip top shape, including gas, oil, etc..
If you own your own home and turn an area or a room into an office, then either a percentage is used or number of rooms in the house is used. For example; if you have your office in the corner of a room, you have to figure out how many square feet of the house is used for your business purpose. For the calculations you can use the area or number of rooms of the work space, total area or rooms in the house. The percentage of the business portion will be the difference between the two calculations. I use one area and the number of rooms in my house is 7, so the area is divided by the number of rooms.
Here are some of the business uses of home expenses you can use:
• Heat
• Electricity (if you use electric heat then you would include it here)
• Other utilities
• House Insurance
• House Maintenance
• Mortgage Interest
• Property Taxes
• Other expenses and you must specify them here.
• Add this all up and if you use a tax program, it will help figure it out for you.
Motor vehicle expenses:
• Kilometres from the end of the previous year
• Kilometres from the beginning of the previous year. ( Only the kilometres used for business is used here)
• Fuel and oil
• Leasing costs
• Insurance
• Maintenance and repairs
• Interest paid on vehicle
Other Expenses:
• Credit card interest and fees
• TV
• Camera
• Magazine subscriptions/newspapers
• Office Supplies, i.e. stationary, pens, etc
• Computer
• Printer
• Office furniture
• Cleaning supplies
• Lawn mower, to keep your place of business neat and tide
• Snow blower, to make sure customers can get to your place of business.
• Any item of maintenance that is associated with equipment to maintain your place of business. (Remember that there will only be the percentage of any item that pertains to the business part.)
• Family members wages
Remember the expenses apply to only the business part of the vehicle. There may be certain conditions that apply to selling a vehicle or a home if it was for a business use. Such as dispositions or purchasing. Check with an accountant for this.
Statement of Business or Professional Activity
Start with the inventory which should be done at the beginning and the end of each year. Also remember to record the Kilometers of the vehicle(s) you are using.
Your gross business income is simply the amount that you have determined in your bookkeeping. Gross is the amount of money made before any expenses were made.
Inventory includes raw materials, goods in process of selling; the products needed to run your business. These are the purchases during the year minus returns, allowances and discounts. Don't forget any direct wage costs, subcontracts, etc that need to be kept tract of. You will finally then minus the closing inventory at the end of the year. This will actually give you the Gross profit that will be at the end of the year.
Expenses (And these are only the business part). (Personal expenses are not acceptable)
• Advertising, this includes any type of advertising you do where you spend money on it.
• Meals and entertainment. (Only 50% of this is used. The more meals and entertainment you use, the higher the 50% will be.)
• Bad debts. If you are not paid for the service or product supplied then all costs of such is a deduction.
• Insurance. A portion of the house insurance and all of the business insurance is deductible.
• Interest. This is applied to any business loans, mortgage interest, or any interest related to the business part.
• Business tax, fees, licences, dues, memberships.
• Office expenses. It is usually bundled together in here. In your own books, keep track of the different office expenses so you know where your money is going.
• Supplies can be related to cleaning supplies etc.
• Legal, accounting and other professional fees. If you use an accountant, a lawyer or any other fee that is for the business then it is deductible.
• Deposit box
• Management and administration fees.
• Rent. If you are renting your house, then figure out what the portion of the place you are using for the business. Only that part is useable.
• Maintenance and repairs, you will have costs in keeping everything in good shape. Again, only a portion is usable.
• Salaries, wages, and benefits you pay out.
• Property taxes. Only the business portion is useable.
• Travel is bundled together and includes travelling fees, accommodations, and allowable part of the meals. Keep your own track of these expenses so that you will know how your money is being spent.
• Telephone and Utilities. These are added together, but here again, keep track of them separately.
• Fuel costs except for motor vehicles. Things such as gas for snow blower, lawnmower, chain saws, etc.
• Delivery, freight and express. This could be where you claim your postal expenses as well as you may very well be using freight in your business.
If you have more than one home based business, then you can divide the expenses between them unless the expense specifically deals with one business.
Even if you use an accountant or a lawyer or a professional to do your taxes, use this information to help lower taxes. The person who does your books or your taxes will let you know if the receipt or expenses is allowable.
Save all your receipts, you just never know when it is useable.
