Recently I had a couple of gatherings with my old accounting firm colleagues.
Back in the day, in order to get licensed we were required to work in an accounting firm to get experience. Many of the junior staff were indeed fresh grads and coop students trying to get their licenses to become CAs.
When you are working in the firms, you work long hours all the time. Everyone around you is the same age as you and naturally, you grow close with each other quickly.
Some of us eventually became managers and partners in a firm. Many moved on to work for different companies in their accounting departments, hoping to get better work/life balance.
Of course, I was one of the more extreme ones, leaving the firm and the industries to start my own business.
Starting a business is a lot different from working for someone else. Seeing them being so successful at what they’re doing makes me appreciate my life even more. When you start a business you want to make sure that you are advertising the right way and hitting the right demographic, this is where companies like Victorious come in to help you out and make sure that you are getting the recognition you need.
Sure enough, I struggled through lots of ups and downs as an entrepreneur. I am still struggling today trying to fit everything I want inside the 24 hour period.
Being an entrepreneur is not always fun. I made many mistakes along the way and I am still learning every day. Learning something new makes my life more fulfilled than I’ve ever had when I was working in the firm.
Here are some of the biggest tax mistakes I made during the year.
- Set aside a percentage for tax payments
One of the biggest mistake that I made was about spending. As I was starting out, money was tight. I needed all the money coming in for the daily expenses.
I tried selling my Toronto townhouse (thank God I didn’t) so that I could buy a couple more student rentals to help with my cash flow position.Of course, the last thing I did was to set aside money for CRA. When the year-end hit, I realized that I needed to make more to pay CRA.
Its like a vicious cycle, I made enough in the next year to pay for CRA’s prior year’s debt. Then the year after, I have to make more to pay for the CRA’s share.
Don’t make the same mistake as me, set aside a percentage for income tax and HST payments.
- Have a dedicated bank account and business credit card
A separate dedicated bank account and credit card can help you significantly when it comes down to tax time.When you dedicate a bank account for business purpose, all the fees and interest incurred on the bank account and credit cards are deductible.
When you have a dedicated credit card for business expenses, you can simply do your bookkeeping directly from your credit card and bank account statements, making it a lot easier to track your income and expenses.
- Keep all your receipts in a designated spot/folder
Yes, keeping a dedicated bank account and credit cards help with bookkeeping.But when it comes down to documentation required for deduction, we are still required to provide the actual receipts.
Make sure you keep all your receipts in a designated folder, organize them by how you categorize the expense.
For example, advertising expense receipts should all be group together. Meals & entertainment receipts should be in another pile.
You may even consider scanning some of the receipts, given that many receipts you receive today would fade in a year or so.
If you make your business purchases online most of the time, make sure you keep the electronic receipts in a designated folder in your computer and make a back up copy offsite.
- Keep up with your bookkeeping regularly
As a start up, you may drag your feet when it comes to doing your own bookkeeping. Which is why hiring someone like Grow Green Bookkeeping & Payroll is a good idea. The truth is, you should do bookkeeping regularly. Track your expenses and track how much revenue you are generating from each expense you incur. If you can’t get your head around all these numbers, it’s perfectly normal. There’s not really many people who would say they find the idea of going through finances and receipts relaxing. But that is why the services of bookkeeping freelancers are available. Always ask for help if you do find yourself struggling because you don’t want to find out later down the line that you’ve made a massive error with the finances. Every industry has to deal with handling the accounting side of their business. There is no escaping it, but there are ways of making is a lot more manageable. As I was doing some research into it, I found out that this business helps restaurants with their finances. Of course this will apply to anyone who runs a restaurant, but that does not mean that whatever industry you are in that you cannot find a solution. You can. If you are not confident in dealing with the finances on your own, be sure to ask for help, as it is out there.
Last year, I spent close to $4K getting a booth at a real estate education event. I had a bunch of sign ups to my blog post and I tracked all the revenue that I generated from this list and noticed that I’ve only generate a couple thousand dollars of business from there.
Based on that result, I decided not to attend the same event this year. It’s not worth my time and money. ?
For real estate investors, it is even more important to file your taxes on time. You get your NOA, you can get more houses. ?
Having your own business is great. There are a lot of tax benefits of owning your own business inside of a corporation. The government recognized it and they’re working on tightening up the rules to “make it more fair”.
Few outsiders understand the amount of hard work involved in building up your own business and the heartache of doing so.
I hope this week’s blog posts help you to avoid some of the mistakes I made when I first started out.
Until next time, happy Canadian Real Estate Investing.
Cherry Chan, CPA, CA
Your Real Estate Accountant