ACCOUNTAX LETTER
Prepared by
H & T Accounting Services
1493 Bathgate Road, Mississauga ON L5M 4B1
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www.HandT.ca
handt@handt.ca
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Tel: 905-858-0775
Fax: 905-858-8645
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Manager: Teji Singh, MASc.-Mgmt.Sc.
Certified Management Accountant |
Jan 2011 |
... we provide... the...
support you can acCount on
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| This newsletter is to assist you in maximizing after-tax returns from your earnings and businesses. To be brief, only important information is provided. Major decisions should be made only after consulting with us. All clients are encouraged to read this newsletter. |
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Prosperity
This is what our entire team at H&T wishes for the readers for 2011.
Urgent deadlines
All businesses must file their payroll and dividend returns before February 28.
Doubling your Small Business Deduction
This deduction can save you up to $85,000 yearly in corporate taxes. This is available to corporations with less than $500,000 taxable income. Timely and proper tax planning can double these savings. If interested, contact us to have your situation analyzed.
Saving taxes through bonus and dividend planning
Much tax can be saved by this planning. It is best done through the year while preparing your corporate books. However preparing year end (YE) adjustments is the last and a big opportunity to use it. The bonus and dividend amounts are a few of many YE adjustments.
However they need much analysis and time. If we prepare your adjustments close to the deadline for filing corporate tax returns, we will not have enough time. Therefore soon after your corporate fiscal year ends bring us all the papers we need to prepare the adjustments.
You need to do so urgently if your fiscal year ended on December 31, because we also need to file your dividend return by February 28. If you wish you can ask us what papers to bring.
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Salaries versus dividends
Sometimes you pay less tax by drawing dividends from your corporation instead of salaries/wages. Mostly a combination is the best way, whereby you take some compensation as salary and some as dividend. The idea is to minimize your total corporate and personal taxes.
For example you could ask us, between husband and wife we like to draw about $160,000 in a fiscal year. We will show you the tax amounts with many different combinations. Let us know if you would like this analysis done for your specific situation.
If you have rental, commission, or business income
For each of these types of income a Statement of Income and Expenses (SIE) is required in your personal tax return—unless your operation is incorporated. Many tax payers and their tax consultants prefer to cook up numbers to prepare the SIE instantaneously. This short cut proves very expensive in long run, besides being illegal. Talk to such a tax payer who has been audited by the Canada Revenue Agency.
All amounts in the SIE should be based on information on the bills and other pertinent documents. These papers should be sorted and stacked in such a way that the papers required to satisfy specific audit concerns can be spotted spontaneously. We set up excellent audit trails to permit that. Proper bookkeeping is required to report these operations.
Audit-thwarting bookkeeping
You need to bring us lot more papers for bookkeeping than
for personal tax returns. While returns are prepared yearly,
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books are better prepared through the year, e.g. in 4 or 12 batches. However some businesses like to get the books prepared yearly, same time the tax return is. In that case, contact us to discuss your situation including the missing information. Generally we require all invoices, bills, cancelled checks, deposit slips, check stubs, bank and credit card statements and correspondence received from government offices.
We print details of your bills—whether a few or several hundred—in the sequence they are stacked. The stacks are then bound in form of books called Audit Trail Reports (ATRs). Thus, most audit questions can be answered immediately by looking at the ATRs—this makes our bookkeeping audit-thwarting.
Our procedure takes extra time and hence can cost more. But if you do a few easy tasks yourself you can get excellent audit trails at moderate cost, e.g you could sort your bills partly before delivering us—unless you just have a few. Our system requires sorting by vendors (or payees). If you want to do so, sort by Vendor Name (e.g. Business Depo) and not by Month or Account Type (e.g., stationery, rent, vehicle fuel).
Maximize your home office deduction
There are two methods to claim your home office (HO) deduction. First is based on the number of rooms and the second, on the proportion of area used exclusively for business. Reduce your tax by selecting the appropriate method. Sometimes it is better to claim no HO expense in the current year or just a part of maximum claimable. Contact us to find more details of these methods.
Crucial before preparing your personal tax return (PTR)
Before preparing your PTR, Year End Adjustments must be made on your partnership/proprietorship books. Your income and expense amounts and hence your PTR is not accurate without these adjustments. This may cost you more taxes now and even more when you are audited. If we have been preparing your books, through the year, we will be able to make the adjustments soon and properly.
If you prepared your books yourself and want us to make the adjustments, please bring us a copy of your file on a CD or a Flash Drive. A small computer file can be sent easier by e-mail. If you have not prepared the books on the computer, bring us the paper files. Either way we may ask you for some additional information and papers.
You may prefer to simply bring us a schedule, instead of a file, showing the sales and expense amounts already adjusted—by you. We will review your schedule and if the
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amounts seem alright, we will proceed to prepare your return. Otherwise we will ask for additional information and
papers for further adjusting.
If you are a new customer and want us to prepare your returns with or without adjustments, provide us your last year’s schedule of income and expenses (which is actually a part of your personal tax return), last year’s Notice of Assessment (this may help us save you more taxes) and a copy of your company registration.
Audit-thwarting tax returns
In returns prepared by bad tax preparers (TPs), your/customer copy is least comprehensive. Many TPs give you just one-page summaries. Worse ones give you nothing—under the pretense your return was e-filed. Actually your copy—the one likely to be used to defend you when you are audited—should be comprehensive
Comprehensive returns have most of the substantiation (proofs of claims) attached to the return. All crucial proofs should be in that package. Remember, the onus of proving your claims is on you, not on CRA. Your substantiation may not be perfect; but whatever you possess should be included in your copy. Some proof is better than none.
Most non-business audits cost hundreds of dollars to defend you and several thousand dollars in taxes, penalties and interest resulting from the audit. These costs are much less if audit trails are built in the copy.
The substantiation of business income statement amounts constitutes a host of bills and other pertinent papers. Being voluminous this substantiation is not attached to the return but is kept separately as stand alone business documentation. Experience shows that the substantiation not attached to your copy is difficult or impossible to find when you are audited, especially if the audit occurs years after filing. To make your return audit-thwarting, we attach all pertinent substantiation to your copy.
Maximize your automobile expense deduction
If at least one spouse owns a business and there are at least two cars in the family, you have several options for car usage for business. You may exclusively use one car or the other or you may use both cars (for business), but partly. By selecting an appropriate option, you may save much tax. Contact us if you would like to know the pros and cons of each option.
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