For all the entrepreneurs, solopreneurs and business owners out there, I recently read a post post that had some great info and humour and would like to share with you, it may save you some money at the bookkeepers!
- The Coffee Claimer. Meals and Entertainment expenses are a pain in the best of times. You can only claim 50% of the expense, then there’s the bookkeeping issue with the disallowed 50% of the HST ITC. Yet there are some guys who will purchase their morning coffee with their company debit or credit card. The truth is on a two or three dollar coffee, you may be paying your bookkeeper more to record the transaction, then what you will save in taxes by claiming the deduction. You are better off buying a $50 gift cards from your coffee shop and using the card. One transaction to enter versus twenty.
- The ATM Addict. Some people for one reason or another will make ATM withdrawals almost every day. There’s nothing more annoying when you see a $22 ATM WD on the bank statement and it is done 15 times in a month. You have to enter in the $20 as a draw and $2 as a bank service charge. Not only do you have the service charges on the ATM withdrawals, but, it will increase the bookkeeper’s time, thus your bill. It’s best to transfer over a larger sum of money once every couple of weeks to your personal account.
- The Gas Bar Shopper. This happens a lot, gas is purchased for a legitimate business expense and paid for from company credit or debit card. The problem is added on to the bill are items like cigarettes, lottery tickets, snack bars, etc. The bookkeeper is then separating the non business expense items and charging them to the owner’s draw account. It’s best not to pay for gas purchases with company debit or credit cards if you are going to make personal purchases.
- The Wrong Company Bill Payer. This happened when an owner owns more than one company and he will pay Company A’s invoices from Company B’s bank account. The reality is, the invoice made out to company A is only deductible as an expense by company A. When company B pays the expense on Company A, it is an inter-company loan to Company B. Not only is this a problem for the bookkeeper, but, it also is a huge problem when the CRA review your books. If this type of activity appears to be necessary, it is best the business owner talks to their accounting and tax professional.
- Mr. Missing Receipts. Some bookkeepers have a policy of no receipt, the expense gets charged to owners draw and no tax deduction. In some cases that may seem like a reasonable argument and in other cases it may be harsh. You need the receipts to defend yourself in an audit. In an HST audit, you need the receipt for the HST amount. Then there’s also the issue of stores like Costco where purchases may be a mixture of personal and business items. While bank and credit card statements prove a payment was made, they do not convince the CRA that the payment was made for a legitimate business expense.
- The Deadline Forgetter. It’s very frustrating to the bookkeeper and accountant for a client to drop of the required materials at the last moment. For me, I like to have two weeks to complete a year end once I have ALL the required documents. The bookkeeper needs an appropriate amount of lead time to have the materials in hand whether it’s for payroll, HST or year end work. It’s unfair to drop off three months of bookkeeping to do if it’s the day before the HST filing deadline. Besides the added stress you have thrown at the bookkeeper, the owner may have more problems if he does not turn in all the documents. Missing deadlines also may mean late – filing and interest expenses as well.
I am sure this list could go on and on. These habits will create more work for your bookkeeper. The key thing to remember is that the above items will often drive the cost of your bookkeeping work up and in the event of a CRA review of your expenses, it may lead to a time consuming unfavourable outcome.
It sounds like a cliche, but, the best advice to mitigate these headaches is to talk with your accounting professional and/or bookkeeper. It’s best to get the proper practices put in place from the start and it should also save you a few headaches down the road.
Colleen Saunders is a 20 year veteran in the mortgage industry, serving Oakville, Mississauga, Burlington and Toronto and offering all mortgage related services such as 2nd mortgages, private mortgages and more.
To contact Colleen, please fill out the form on www.mortgagesbycolleen.ca or call 416-459-2406