Many of us have electronic documents in this day and age, which doesn’t help streamline tax time if you don’t have all of your documents in order. If you can provide the working papers electronically and either a backup of your software OR sign-in access for the online program you use, it will save your accountant from having to scan everything in, or manually enter items when they can just import from your electronic files.
Keeping an accurate chart of accounts is key to ensuring minimal fees.! This is where you have categories for how you spend your money, assets & liabilities, sales, who has an outstanding balance, etc. If you already have one set up, keep in mind it is recommended to keep the chart of accounts as simple and as few changes as possible. Changes add time each year for your accountant who needs to map it and set it up in their year end software to ensure it gets into the Financials and the Tax Return appropriately. When changing accounts or making new ones, don’t use an account that has been used in the past 5 years as something else – it creates a mess for comparables and creates more work as your accountant will need to reclassify prior year balances. For example, if an account was used last year as a “security expenses” account but this year you didn’t have any, but had storage this year, don’t rename the security expense account storage. Create a new account. Anything not used for 5 years could be renamed if needed – but try not to. If using a program with a preset chart of accounts, remove accounts not being used. For example, Sage has preset accounts for various industries – these may have expense accounts you don’t need. As an example, exchange gain/loss is something you may not need if you don’t buy or sell outside of Canada. You can delete these accounts which makes the year-end process easier. Keep things straightforward and clean. Your CPA will be able to review your finances in an expedient manner!
If you’re a business owner, having an accurate sales record is a great first step to saving yourself money. Whether you use accounting software or not, every dollar should be properly labeled so it is properly taxed. Tips, services, sales of goods or services, labor, etc should all be labeled accordingly, as different types of revenue may be taxed differently. For example – inactive income (investments, rentals, etc) are taxed differently than active income (products and services), therefore they need to be more readily apparent. The same goes for expenses. If your company has sales of products and operates out of a building they own but don’t use all the space, and rent some out to another company, any income and expenses related to the rental part of the building are taxed differently and need to be clearly separated. Similarly, CRA penalties and interest are not tax-deductible – keeping a separate account for CRA interest vs normal bank charges and interest makes it easier on your accountant. Another example is meals – it is only 50% deductible and therefore should be kept separate from travel expenses that are 100% deductible, like hotels, parking, etc. If you have categories set up in your accounting software, then your accountant won’t have to spend time combing through the GL to split these items out for taxes.
If you use merchant accounts like Square for payment processing, make sure merchant fees are labeled correctly as well. For example, if you make a $100 sale through Square, and are charged $10 in fees, don’t simply label $90 in sales in your books. Appropriately label your total income, and then mark the fees as an expense. This will save your CPA time from having to go back through the whole year’s worth of books (and time = money!). We recognize this may be the opposite for orders that are made through other parties, for example, SKIP The Dishes.
The revenues here are reported on the revenue AFTER The Skip fees therefore if you are reporting the gross and then the fees these should actually be netted against each other. If you have categories set up in your accounting software, you should be able to accurately match both your bank deposits and your sales records. Ensuring accuracy here will certainly save time and money.
It sounds simple, but don’t forget to review transaction dates towards the end of the year (mid-December to mid-January) to make sure the correct transaction dates are recorded. This ensures income/expenses are reported in the correct tax year. On the same token, get in the habit of using the memo field! Providing detail in the memos makes it easier to review later on – ex) “March Rent” – and track to make sure you have 12 months of rent payments.
Verifying accounts before tax time also helps your CPA streamline the process. Verifying your accounts receivable for open and accurate invoices, accounts payable for open bills, bank/credit card loans are showing the proper balance and match statements, and verifying checks & deposits with bank statements will save your tax professional a lot of double-checking.
When you are verifying the accounts, make sure to keep reconciliation documents and working papers to provide to your accountant. Proving the supporting documents that agree to the accounting records will be one of the biggest money savers. Here are some examples:
- Bank Reconciliation & Bank Statements to show the difference in the GL balance to the statement (i.e. list of outstanding deposits and cheques).
- AR listing that matches the trial balance and comment on any that may not be receivable
- AP listing that matches the trial balance – provide a supporting invoice for any large items. If any are old, provide a comment for why it is not paid (payment arrangement, disagreement on payment, etc)
- Capital Assets/Large Repairs – provide an invoice for any large asset purchases and any larger repair items. This will help your accountant ensure the classification is correct. I like to see anything over $1000 (except computer equipment). Some professionals use other thresholds, like $5000.
- Loan statement and agreements
- Lease agreements – should be provided if any new or renewed leases are signed.
- Quick description of any major changes – for example if you have advertising costs of $10k one year and then $50k the next, write a note about why the expense increased so much (i.e. started radio advertising, new website/ecommerce, etc)
Just like it sounds, accuracy is a big factor in saving yourself both time and money at tax time. Accurate record keeping will become a habit and certainly make each year easier. Don’t settle for partial records, or inaccurate books, and then spend a fortune each year while your accountant corrects it, plus all of the back and forth answering questions or clarifying. Accurate books also provide you with a lot of valuable information for your business, all year long. Consider a bookkeeper OR ask your accountant if they do bookkeeping. Paying some each month can save more on your end, and pay off overall PLUS take a load off your shoulders! Not sure where to look or who to talk to? We offer set monthly rates that are guaranteed for bookkeeping and year ends so you won’t have any surprise billings! Contact us for your free no-obligation quote.