You look after your own cash flow, billings, purchases, and payroll – that’s more of a day to day exercise.
You want a record keeping system that summarizes your daily transactions leading to reports that can be customized for many uses, such as:
GST/HST and tax filing
Tracking of income/expenses
Monitoring vital information
Remembering and storing what can easily be forgotten or missing in action
If your business fits this model, TaxWatch can really help. Plus you experience the advantage of our attitude, ease of use, bookkeeping protocols, and guides, and if you wish, tax planning and preparation. A turnkey service to be sure.
Deposits are placed in bank accounts (detailed in deposit book or e-transfer), debit and credit card transactions are recorded with assistance from your POS system (retailers).
Disbursements are made by cheque, credit card, e-payments from the business bank account. All have a description of name, date, reference no., purpose, amount, and tax elements.
The bookkeeper enters transactions into bookkeeping software or spreadsheet (or combo).
You work together with your bookkeeper (could be TaxWatch) to code right on the bank documents where (choose account) transactions are posted (see Critical Considerations below). For example, the nature of deposits (sales, loans, your contributions and nature of disbursements (expenses, assets, owner withdrawals, credit card payments) have to be carefully discerned. This is history in the making.
Credit card statements are usually summarized in spreadsheets. Bank statements and credit card statements can hopefully be downloaded to save time on the initial entries.
Now you have summaries for the period you choose. Then your bookkeeping fills in missing information by journal entry (paid by cash, personal use, home office, vehicle) and do your year-end cut-off entries for receivables, payables and inventory. Then you gingerly record tax amounts due – you are done. (See Critical Situations below).
Depending on your needs, we work with Excel, QuickBooks Desktop and QuickBooks Online (see examples above).
We are QuickBooks Pro Certified!
Documenting your business transactions can be relatively simple once a routine is established and you and your bookkeeper and accountant are riding the same wave to glory. It’s worth it – not just for the compliance but for these Critical Considerations as well.
Establishing a record of transactions and reports that can be confidentially (because they are accurate) shared with stakeholders before records are lost or the nature of the transactions is forgotten. These interested parties would be the owners, tax authorities, bankers and lenders, legal (back up to dispute transactions or arrangements), prospective buyers, trustees, executors, executives, and managers.
Providing vital information and reality checks for many business reasons such as monies available for owners, adherence to borrowing commitments, expansion or contraction, trends, statistics, comparisons, supported assumptions to act upon. You can never have too much information. Don’t worry, no one does.
Reducing Tax Liabilities
There are certain arenas you enter hoping you can control the extent of how you are clobbered. For tax postures, you just have to disclose all income, not claim expenses that are 100% personal or otherwise not known to be allowable. Don’t hide anything. Everything else enters the grey zone of your risk tolerance, attention and attitude of your tax preparer and the trail of documentation support from the evidence left behind by your bookkeeping procedures. You will rarely be maimed if you have a supportable position.
Examples of what is affected by your bookkeeping data entry:
Expense (tax deduction with some exceptions) or capital items.
Timing of payments or receipts (billing procedures, setting up liabilities at year-end).
Differences between tax department think and your initial filing position.
Treatment of funds withdrawn by owners.
Revelations to management – good or bad.
The Big Dilemma
If you have no one to impress, your financial statements just got easier. Tax driven they should be. The common reality of many is they have to have certain levels of income to satisfy loan covenants, decide matrimonial support, financing of business activities, personal loans, or mortgages. You are asked for tax returns and approval for obtaining credit report. It’s always the same institution inquisition and need for proof of viability of keeping your commitments - or not. You tell your banker your income is lower because you are trying to pay less tax so you can more easily afford the loan payments. He stares blankly (knowing this dilemma never ends) and says – doesn’t work that way. The end game is you need to know how to establish your income and why – and that leads to the types of records you have which generates the reports (financials, tax returns) you always need.
Reconciling financial statements to tax filing positions and amounts
Once your bookkeeping is completed and year-end adjustments are recorded, voila, you have a financial statement for your operation. Now the fun part. Really. You adjust your net income from the financial or year-end summaries to the tax returns. They even have special forms to do this. You are completing (in theory and reality) two sets of financials. Everything to comply with the tax law using your tax filling position. You add or deduct expenses as you and your tax preparer agree. Good luck with these discussions if you have not had a discussion about filing options and risk tolerance (see Discussions with your Tax Preparer below). Timing of income and expenses (write-offs), adjusting for different legislation treatments (eg. Capital gain vs. income), special incentives, payables, receivables, inventory adjustment – there are plenty of items that can be (or should be – it depends) adjusted.
Then you file, wait for the assessment and decide when and how to pay – a totally other world of options. If you need help with insight into CRA tax collection expectations, what can be done and how CRA collection practices can affect you, please contact us.
When bookkeepers are recording expenditures it is important to consider not only what the allocation should be but also the possible tax consequences or issues that the allocation may create. For example, high travel expenses or repair expenses are more likely to bring about scrutiny or even an audit by CRA (compared to other expenses). The tax-payer and bookkeeper need to work closely when deciding what information to provide CRA which is of fundamental importance.
Compliance for the sake of appeasing authorities will never end; bookkeeping and financial reporting are more than that obligatory exercise. As a business owner, you have confidence in your capabilities to decide what is best for you. Gathering like-minded experienced service providers that can help you with what is needed is an ideal endeavor for financial reporting, documentation, tax planning and preparation.
Bookkeeping is easy. Good bookkeepers using sophisticated programs can achieve impressive productivity and accuracy limited only by the extent of the nature of the material they receive. What is more difficult is coordinating the providing of documents, deciding what the data entry process should involve, what information this will provide and who will eventually use the reports.
Here are important aspects of the delivery of bookkeeping and tax services:
Clarify how data is provided and who will access the information, especially personal data.
Originals or copies
It is best to keep copies of important documents not easily replaced (agreements, tax slips) before you send the original documents to the bookkeeper by mail with tracking or courier - a dependable manner of exchanging documents. Accessing documents from cloud files is effective as well.
You always own your documents but the bookkeeper owns the program and files they create. You need possession (copies) or access to these files.
TaxWatch bookkeeping services are usually performed either quarterly or annually. Quarterly provides information for GST/HST reporting and makes the year-end effort easier in the accountants’ busy season. You want them doing tax planning – not bookkeeping.
Cost depends on the type of records you want to end up with. You absolutely need to be able to trace from source documents to the final tax returns. Summaries and reports containing numerous line totals need to indicate how these totals were created – not always apparent.
So the cost is expended for what you end up with and how useful it is for preparing financial statements and tax returns (with attention to tax savings). Cost also depends on how coordinated you, your bookkeeper and your accountant are. Costs range from $40 per hour for a fast, efficient, figure it out bookkeeper. Once the initial pain of setups of the books passes, great efficiencies abound if bank statements and credit cards can be downloaded and the bookkeeper gets to know your business.
TaxWatch helps businesses up to 5 million in sales. Expect to pay any capable bookkeeping services from $250 to $800 per month. This saves much consternation and money when preparing tax returns.
TaxWatch Canada provides comprehensive tax reporting and tax planning services to :
Sole-proprietors/Self - Employed
Small Business Corporations
The TaxWatch Canada advantage is that we are beholding only to you. We seek out best outcome options and we think your tax situation through (work involved, tax affordability, typical CRA responses, consider involvement of others in your business and personal life). In effect, we are looking out for you personally, not just filling in forms. You will notice the advantage.
Our experienced team offers a variety of tax filing and compliance related services, including but not limited to:
T1 General Income Tax Return
T2 Corporation Income Tax Return
T3 Trust Income Tax and Information Return