July 17, 2018

Top 10 Home Business Tax Tips

It is often said that one of the great virtues of starting a home business are the tax breaks you can claim.  Here are some of the more popular home business write-offs as well as some tips on how you can legitimately claim them.  (Also check out How To Qualify For The Home-Office Tax Deduction).

1-  Keep a Business Journal – Being audited is not the end of the world but not having the records to back up your deductions can be a nightmare.  To avoid this unpleasant situation, keep a daily log of your home business activities.  Did you buy paper for the printer?  Write it down and either attach the receipt or scan the receipt in your log book.  The same goes for mileage, phone calls and other costs as well as payments received by your business.

2-  Write-Off Your Workspace – Writing off a home office can be particularly attractive if you have a line of work that can be neatly confined to a dedicated room.  You can still write off part of a shared room, but in either case, the space is calculated as a percentage of the total house or apartment area.  That percentage is applied to all the related costs, including utilities, insurance, rent or mortgage payments and so on.  Do not claim unrelated expenses like the installation of a bird fountain in the backyard – those types of stretches make Revenue Canada a little testy.  To learn more, read Creating A Home Business Work Space).

3-  Update Your Equipment – Office furniture, software, computers and other equipment are all 100% deductible within the year that the cost is incurred – you don’t need to depreciate.  There is an upper limit and the purchases must be majority-usage and necessary or helpful for business.  However, a widescreen TV and La-Z-boy for the office is going to be a hard sell.

4-  Save For Retirement, Stay Healthy – If you are working solely for your home business, you will have to pay the employer’s share of Social Security and health insurance but you can deduct half the amount of social security and the total premiums for you and any employees.  You can also fund retirement plans designed for the self-employed and write the contributions off against your personal income tax.

5-  Talk Up a Storm – If chatting with clients is a necessary (or helpful) part of your business, it may be worth getting a second phone line or a dedicated business cell phone as both of these are 100% deductible.  If you only converse with clients occasionally, you can still write off the costs by noting the dates, times and reasons for the calls.

6-  Get Connected – Similar to the phone bill, you can deduct part of the cost of your internet if you use it for business.  There is no absolute percentage to use but it will be difficult to write off more than 50% if other members of your family are using it for non-business purposes. 

7-  Entertain Us – You can wine and dine clients – emphasis on clients and get a tax break.  The tendency for business owners at all levels to abuse this write-off has scared many home business owners away from claiming it.  However, it is acceptable for you to take out a client for a meal and some entertainment. 
  
8-  Take a Trip, Not a Vacation – Have to hit the road to expand your market?  Save your receipts.  On business trips, your travel expenses are 100% deductible and your food expenses can be deducted at 50% of the total.  Keep all of your receipts because even things like dry cleaning and tips are considered a necessary expense when you are trying to expand in new markets.

9-  Employ (Not Just Pay) Your Family – You can use family members as employees and deduct their salaries as long as you account for their work and pay the going rate.  You can also deduct insurance premiums for them as well.

10- Make Justifiable Deductions – The most important tip that is worth repeating: just because you have a home business doesn’t mean you can go crazy with deductions.  If you don’t think you can face down an auditor with detailed justification of the deduction, then perhaps it isn’t a deduction you should be taking.  (Keeping thorough records and knowing the penalties make this experience easier than you would expect.

www.investopedia.com/articles/professionaleducation

6 Tips For Closing A Credit Card

Closing a credit card can improve your credit score by freeing up your available credit.  Keep these tips in mind to help you get through the process without additional charges or fees.

  1. Clear the Balance:  if you are carrying a balance on the credit card, you can’t close the card.
  2. Read the Fine Print:  Check your card holder’s agreement to ensure you will not be charged any penalties, especially if you opened the card recently
  3. Collect Outstanding Rewards:  Generally any rewards such as points or airline miles still technically belong to you even after you close the credit card but just in case, cash in your rewards first
  4. Cancel Automatic Payments:  Check whether you have automatic bill payments made through your credit card as should payments go through, it may result in additional fees or if the payments are returned “Account Closed” you may be charged non payment fees
  5. Call, Cancel and Get an Effective Date:  get the customer service phone number from your credit card statement.  Be prepared for a conversation with a sales rep to convince you to keep your account.  Ask for the date when the closure will be effective and clarify there won’t be any outstanding finance charges.
  6. Get Confirmation In Writing:  Request a confirmation letter that the account was closed and the date effective.
It is a good idea to get a credit report several weeks after you have closed your credit card just to ensure everything went through as agreed and there were no unexpected charges.

Colleen Saunders is a 20 year veteran in the mortgage industry, serving Mississauga, Burlington, Oakville 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 our site or call 416-459-2406

The Devil In The Fine Print Of Mortgages

Mortgages sometimes have costly or irritating restrictions that you won’t know about unless you read the fine print, it’s not all about the interest rate.

  • Restrictions on breaking your mortgage before the term is up
  • Restrictions on breaking your mortgage for the first 3 years
  • Interest rate differential penalties on fixed and variable rates
  • Inability to port unless the purchase and sale take place on the exact same day
  • A poor conversion rate guarantee
  • No refinances during the first year
  • Amortization limits of 25 years
  • Minimum amortizations of 15-18 years
  • Restrictions on converting from a variable rate to fixed rate for the first 6 months
  • No ability to break your “open” HELOC without a penalty
  • No pre-payments within 30 days of discharge
  • Inability to port across provincial lines
  • High administrative fees when porting
  • 100% clawback of cash-back if the mortgage is broken before maturity
  • Requirement for a full banking relationship with the lender
  • No lump-sum pre-payment privileges
  • No annual payment increase allowance
  • Pre-payments restricted to one specific day a year (instead of any payment date)
The list could go on…  Keep a lookout for restrictions like this when comparing different mortgages.

If you need any further clarification on any of the above, I would be pleased to help in any way

Colleen Saunders is a 20 year veteran in the mortgage industry, serving Mississauga, Burlington, Oakville 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 our site or call 416-459-2406

Private 2nd Mortgages

Have you ever heard the term “Private Mortgages”?  Exactly what does it mean.


Private mortgages represent an investment into real property by an individual, just like you or me. They can invest cash or utilize their RRSP funds to hold the mortgage.  Individuals that do a lot of investing quite often form a corporation to hold their investments. 

Why would an individual invest in a mortgage?  The usual reason is because of the interest rate.  Just like in the stock market, the higher the risk, the greater the return. 

The next question would be, why would a client pay a higher interest rate.  To explain the benefit to both parties, let’s take a look at a typical scenario.

Mr. Smith has a 1st mortgage with a Bank for $300,000 at a rate of 4%.  He has accumulated credit card debt totalling $80,000 and his house is worth $500,000.  The payments on the $80,000 debts are $2,400 per month (3% of the outstanding balance).  His Bank won’t lend him the money because his monthly payments are too high.  A private lender will probably charge 12% and now his payment will be $800 per month.  

This is a win win situation as the private lender earns a great rate of return and Mr. Brown cuts his monthly payment by $1,600 per month.

Colleen Saunders is a 20 year veteran in the mortgage industry, serving Mississauga, Burlington, Oakville 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 our site or call 416-459-2406

Paying Down Debt Makes Sense

It has always been a dilemma of whether you should use any excess cash to contribute to your RRSP or pay down your mortgage.  The current economic equation has recently tilted in favor of paying down debts vs. building up assets but only for those people with a low tolerance for any investment risk.  The current interest earned from GICs, term deposits and government bonds remains pathetically low.
For those risk-adverse savers who abhor the volatility of the stock market, money is earning 3%, if you are willing to lock in for a few years and less than 1% on deposit accounts.  It takes 72 years to double your retirement nest egg if you only earn 1% per annum.

If you are paying from 3-6% on your mortgage then your are effectively destroying your wealth.  It’s the debt equivalent of constantly buying high and then selling low in the stock market. 

Here is how to think about the trade off between paying down your mortgage versus saving in your RRSP.  Every dollar you don’t contribute to your investment portfolio will earn the mortgage rate you are paying on that dollar.  If your mortgage is costing you 5%, then every dollar you don’t invest but instead use the money to pay-down debt will earn the said 5%.  If you are paying 10-23% like on many credit cards, the argument to eliminate the debt is even stronger.

Of course, if your investments are invested aggressively under the expectation that they will earn more than the mortgage rate you are paying, then you can justify not paying down your mortgage.  After all, borrowing at 5% makes sense if you expect to earn much more.

To quote the Review of Financial Studies “Households with high interest debt have a reduced benefit to equity participation and in many cases should not own any stocks…repayment of outstanding debt almost always yields a higher rate of return than many of the safe (investment) assets.”

As our mortgage interest is not tax deductible, means that your Canadian debt is costing you even more compared to the U.S. consumer.  The ie 4% you are paying on your mortgage is 4% after taxes.  Many Canadians might be better off forgoing the tax deduction from the RRSP, which will eventually have to be paid back, instead py down their high interest debt.

Look at both sides of your balance sheet at the same time.  Add up all your debts and compare the interest cost of all your liabilities against the interest you will be earning on your retirement investments.  If the former is greater than the latter, it is time to pay down some debt and forgo the investment plan contribution.  Oddly enough, not contributing to your RRSP might make you wealthier in the long run.

www.thestar.com/business/personalfinance/article/844358–paying-down-debt-makes-sense?

Colleen Saunders is a 20 year veteran in the mortgage industry, serving Mississauga, Burlington, Oakville 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 our site or call 416-459-2406