home business write offs help please

[fishnut9]

so my wife runs her own dayhome out of our house. Its tax time and I added up her yearly income and did the math. We owe six thousand to the gov. We don't have the money because we came upon some hard times and had to spend our paychecks on other things. Now I was just wondering how much stuff I can write off and how much has it lessened what you owe. we spend three hundred dollars a month for groceries and equipment for her job. Even to small business owners in the past how much has your write offs saved you.

[huntinstuff]

A portion of:
House insurance
Heating
Water
Lights
Repairs
Food for clients
Security
Phone

I have claimed tens of thousands in write offs, been audited, and owed nothing at the end. If your expenses are legit and you have the documentation there is rarely a problem

If you are stuck, revenuers will give you time to pay in installments from what i have heard

One of the biggest downfalls of a home based business is having the books done regularly and knowing what revenue canada will be asking for at tax time.

How long has the business been operating

[ditch donkey]

Originally Posted by huntinstuff

If your expenses are legit and you have the documentation there is rarely a problem

Legit is the key word. You can write of whatever you want, when you file your taxes, it doesn't really matter. However, should there be an audit, it matters a great deal, and everything must be justifiable.

I have had a aquaintence go through an audit, only to find out he could not justify his, "parade car."

But anything that is associated with the running of the buisness can be a write off.
2 rolls of toilet paper a week- seems reasonable
7 rolls of toilet paper a week- might raise a flag

[fishnut9]

Originally Posted by ditch donkey

Legit is the key word. You can write of whatever you want, when you file your taxes, it doesn't really matter. However, should there be an audit, it matters a great deal, and everything must be justifiable.

I have had a aquaintence go through an audit, only to find out he could not justify his, "parade car."

But anything that is associated with the running of the buisness can be a write off.
2 rolls of toilet paper a week- seems reasonable
7 rolls of toilet paper a week- might raise a flag

You would be surprised at how many six kids can go through a week. What do you mean tax shops do you mean hr block. That's who I usually go

[Justanotherbuck2]

yes thats who I mean, you need a good accountant to help you out and advise you. H and RB is ok for form type taxes that any 17 year old can do, but when it comes to buisness I would use a tax accountant, sure its not as cheap but you get what pay for. Keep it legit, and don't set off red flags, if they say you can claim up to 30% claim 25% keep it under or at the norm. You claim higher and the flags come up.After 15 years in buisness I have paid taxes every year, cost of paying the rent to live in Canada . I have been paying since my first job at age 12 like most folks, the secret is to not overpay and thats where an accountant can help you.

[FishingMOM]

Dont forget internet
gifts?

Yes 7 rolls of toiletpaper for 6 kids is NOTHING.
I would worry if your claiming 12 or more rolls.
Little fingers tend to use 5x more per wipe than grown ups.

[mr.pike]

Originally Posted by ditch donkey

But anything that is associated with the running of the buisness can be a write off.
2 rolls of toilet paper a week- seems reasonable
7 rolls of toilet paper a week- might raise a flag

Not if you live in Regina,lol, sorry couldn't resist!

[fishnut9]

Almost two years now. Our appliances, heating, water, gas and so on add up to foUr to six hundred a month. I've kept every bill ever paid and every shopping receipt this year.

[338ultra]

fish, where a you located

[huntinstuff]

Ok. Since it is a dayhome, things have to be clean. All of your products used to clean, including your washer and dryer/steam cleaner/soap/rags etc is deductible(business use portion)

Toys/books/dishes/cups/utensils/paper towel/ too

If you drive or pick up kids, you have vehicle expenses too, including the use of your vehicle for business purposes (driving to get business suPplies)
That also includes a portion of your reg and insurance on your vehicle

For safety, you need a phone in the home, and a cell phone too. The cell phone allows you to call 911 AND remain with any child who may get injured. It is also necessary in case the power goes out. Cordless phones do not work when the power is out

Are you seeing my ways of thinking?

[fishnut9]

I live in grande prairie. Although I can drive I don't have to drive the kids anywhere.

[Taco]

Keep a accurate set of books, enter everything remotely connected to the business and take that to a good accounting firm. It will cost you up front but save up thousands in the long run.

[dcutter]

Originally Posted by Taco

Keep a accurate set of books, enter everything remotely connected to the business and take that to a good accounting firm. It will cost you up front but save up thousands in the long run.

X10!!!

I had a small archery shop I was running out of my house a while ago. I met with an accountant during the year and he laid everything out for me. It is far too much info to even touch on here, but things you wouldn't imagine can be written off.

A meeting with a good accountant is definitely in your best interest, and unless I'm mistaken, the fee you pay the accountant is tax deductible as well?

[fishnut9]

How much does an accountant usually cost

Originally Posted by fishnut9

How much does an accountant usually cost

It really depends how organized your books are but plan to spend over a thousand bucks. They can likely give you some good advice about book keeping and possibly incorporating too.

[Justanotherbuck2]

You can also claim a portion of the interest on your morgage payment as well, if you take the kids on outings, transportation too, fuel, insurance,vehicle cost and maintenance, also cell phone bill, Not 100% of course but a reasonalble persentage. Any repairs completed etc,etc,etc.. If you use your home as a expense , just remember the home can become an asset of the buisness and when you sell it you could be subject to a capital gains tax. I wouldn't let that bother you though becuase I believe the bennifit yearly outweights the gains tax. Its proberly a good time to talk to an accountant and I don't mean those tax prep shops a real accountant, most of the tax shops are book keepers or less and may not be aware of all
the ways to help you. You also may want to set up a monthly payment in the future softens the end of year abit. Taxes are a good thing ..LOL it means you made some money! Good luck with this. Revenue Canada is not as cold hearted as they used to be so you can likely work something out to pay over time. GST now thats another story those no good ruthless vultures..LOL

[Okotokian]

Originally Posted by fishnut9

so my wife runs her own dayhome out of our house. Its tax time and I added up her yearly income and did the math. We owe six thousand to the gov. We don't have the money because we came upon some hard times and had to spend our paychecks on other things. Now I was just wondering how much stuff I can write off and how much has it lessened what you owe. we spend three hundred dollars a month for groceries and equipment for her job. Even to small business owners in the past how much has your write offs saved you.

Get a tax accountant. Don't file a return based on advice you get on a hunting and fishing board or your next string of posts will be titled "Help! I got hit with a huge tax penalty!"

[Lonnie]

x2 on the tax acountant you will usualy get 2x more back than a taxs shop and shop around as I found one that was semi retired only did a few buisnesses but he kept the books up to date I would give him all the paper work at the end of the month he figured out how much i owed in gst every month & taxes at years end. cost was $60 a month but well worth it

[Redfrog]

Talk to a tax accountant. Asking how much he will charge is like asking how long is a piece of string. It is different for everyone.
He will give you an idea of costs. It will likely be less than you think and well worth the money.
You will save money and peace of mind.

[sco22]

First step - speak to an accountant. I think that point is pretty straightforward. Their fees will be deductible as well.

Secondly, for your own ball park estimate as to where your tax bill will be, you need to assess the rough square footage of your house that is used for business purposes. Start by looking at the main rooms the kids utilize on a daily basis - play room, bathroom, etc. Use that amount of square footage divided by the house square footage (entire house on both sides of the equation including basement) and that will give you a ratio of the expenses you can claim. For example, if you utilize 800 square feet out of 2,000 total available square feet, you will be able to apply 40% of your home eligible expenses against the income derived from the business. Of course expenses that are directly for the business - say mandatory items such as a first aid kit, child sized bedding, training pottie's (assuming you have not current use for a pottie) are 100% deductible. I would also suggest on a go forward basis that you separate your food purchases into 2 bills - one for home and one for the business. The more organized you are, the less likely to encounter challenges. This is not rocket science and if you buy a $30 tax program from Staples, it will walk you through it. However, there are a lot of minor details that can be easily overlooked or miss so still speak to an accountant. You need to make some judgment calls and things like taking CCA on your house may lead to capital gains down the road. You should know the full extent of the long term ramifications of current day tax planning choices.

Last thing - did you operate the business in prior years and did not deduct? If so, you can refile for those years. That is a bit more tricky and most likely will trigger some form of review/audit by CRA.

Do you know any small business owners in GP? Call them and ask who they use for tax and accounting services.

Cheers.

[Almer Fudd]

You still have time to do this right.
Organize your monthly info and go see an accountant.
Don't forget that in addition to declaring all related expenses you can likely income split and there are some great savings there.

On the positive, nice to hear about a home based business that's making money.

[Mike_W]

Just an FYI you will need to write off somewhere in the $20,000 range to deteriorate the taxes owing.
You don't need to pay the taxes right now you still have time to save up also note that the goverment can set you up on a payment plan to pay off your owed taxes.

I hate paying taxes however don't get to greedy it could make you be chosen for a "random audit" and be further behind in the end.
Household expenses max 20% should be the business
Work vehicle expenses unless you have two cars 80% to the business max.
Office supplies computer internet phone all that can be strickly business.

Good Luck
Mike

[winged1]

Revenue Canada has general guidelines they use to indicate what are typical expenses/revenues for the declared business types. If you fall outside the guidelines, your chance of audit are increased. In addition, certain business types are targeted. A number of years ago they concentrated on self employed building trades.

I also would recommend an accountant experienced in small business. H&R 'may' have someone on thier payroll, but ask for references to be safe.

The advantages in maximizing your tax positon is one thing. Not taking on the strain yourself is another big advantage. Being unprepared for an audit call will probably be one of the most stressfull things you'll endure, and a reasonably skilled accountant will reduce that likelyhood.

[Digger1]

Originally Posted by Lonnie

x2 on the tax acountant you will usualy get 2x more back than a taxs shop and shop around as I found one that was semi retired only did a few buisnesses but he kept the books up to date I would give him all the paper work at the end of the month he figured out how much i owed in gst every month & taxes at years end. cost was $60 a month but well worth it

X3! WELL worth the money, and not expensive. Better than HR-

[bigdaddy37]

There is some good advice here, but some things are missing... such as:

what ever portion of your mortgage you claim as a business expense, you will have to claim as capital gains when you sell your house down the road. If you're incorporated and you "rent" a room to your corporation, you must claim that as income on your personal taxes for that year. Best not have CRA find such errors in an audit.

You don't write of the entire puchase price of assets (computers, fax machines etc), you write of the depreciated value each year as outlined in the tax code as a capital cost allowance. (http://www.cra-arc.gc.ca/tx/ndvdls/t.../menu-eng.html)

If you own your vehicle and use it partially for business, you must track each KM in a log book, calculate the % of business use and % of personal use and claim accordingly.

Incorporation has pros and cons for both liability and tax benefits. Speak with an accountant and lawyer familiar with it to determine if it's beneficial for you.

If your business shows $30k or more in income during any consecutive 12 month period (not just a single year), you must have a GST number and charge GST. Incorporated or not. Once this occurs, you must charge and collect gst until the business no longer exists. (http://www.cra-arc.gc.ca/tx/bsnss/tp...ndtry-eng.html)

Also, there is mandatory WCB coverage requirements for dayhomes, even if it's only one person working there. (https://ds.wcb.ab.ca/wcb.ratemanual.....aspx?ID=82801)

The best suggestion is take your tax stuff to an CA or CPA, not a bookkeeper, and invest in good software for tracking, such as simply accounting.

[avb3]

Originally Posted by bigdaddy37

There is some good advice here, but some things are missing... such as:

what ever portion of your mortgage you claim as a business expense, you will have to claim as capital gains when you sell your house down the road. If you're incorporated and you "rent" a room to your corporation, you must claim that as income on your personal taxes for that year. Best not have CRA find such errors in an audit.

That is not entirely correct; if the OP were to write off CCA against the house, then a recaptured depreciation would kick in. Writing off a portion of the interest does not trigger any recaptured depreciation issues.

If your business shows $30k or more in income during any consecutive 12 month period (not just a single year), you must have a GST number and charge GST. Incorporated or not. Once this occurs, you must charge and collect gst until the business no longer exists. (http://www.cra-arc.gc.ca/tx/bsnss/tp...ndtry-eng.html)

The income referred to here is not net profit but revenue. Day homes are usually exempt from GST. See CRA guidelines on day homes

The best suggestion is take your tax stuff to an CA or CPA, not a bookkeeper, and invest in good software for tracking, such as simply accounting.

There is no such thing as a CPA in Canada, that is a U.S. designation. Not all CA's, CGA's or CMA's, which are the 3 designated accountant types in Canada are able to do taxes, as their professional associations require them to have specific guidelines in place. Think of lawyers; a good corporate lawyer probably will know next to nothing about divorce law, and vice-versa.

A public practice accountant will cost anywhere between $150 and $275 an hour. Staff that work on your file will be at a lessor rate.

If your books are not in reasonable shape, then the accountants staff will have to bring them up to date, and you will be paying a minimum of $75 an hour to have them to that.

You are better off having a good bookkeeper do your books, and if the issue is complex, they can refer you to a designated accountant who deals with tax issues.

We really need to be careful what "advise" we give on these forums. If we don't know what we don't know, we should perhaps find out first.

[fishnut9]

Well now I come across a problem. I have three thousand dollars. Now do I use it to pay off half the taxes or do I use one grand to pay off an accountant. I'm just worried I spend money on an accountant and it turns out I only get a few hundred off

Originally Posted by fishnut9

Well now I come across a problem. I have three thousand dollars. Now do I use it to pay off half the taxes or do I use one grand to pay off an accountant. I'm just worried I spend money on an accountant and it turns out I only get a few hundred off

If this is a business you plan on being in for years to come, I'd say get the accountant. You never know what they can save you.

[Redfrog]

Get the accountant.

[eastcoast]

most of my friends and family that run businesses have accountants that take care of it,they save every receipt and submit it to the accountant and they take care of it,and at the end of the year you can write the accountant off too.