Thanks to ECN Member A-line, this checklist of write offs for business owners. He first posted it in 2004(?)
Building Rent/Lease Dispatcher Property Taxes Management Training Office Training Tangible Taxes In-House Training Building Insurance Tech Training Mfg. Training Telephones Internet Access Charges Training Equipment Vehicle Maintenance Travel Utilities Vehicles Loans Subscriptions Inspections Liability Insurance Employee Insurance Truck Racks Toll Calls Bonds Pagers/Cell Phones Ladders Trips to Supply House Safety Equipment Radios Licenses Computer Maint. Law Suits Radio Maintenance Printing Software Office Equipment Vacation Pay Copy Machine Forms Life Insurance Holiday Pay Uniforms Accounting Business Insurance Workers Comp. Trade Association Wages Salaries Advertising Tax Preparation Stationary Theft Memberships Fuel Interest Marketing Pay Roll Taxes Uncollected Money Unbillable Hours Commissions Call Backs Unemployment 30+ Day Receivables Safety Training Bonuses Shortages Equipment Bad Checks Inventory Delivery Christmas Party Test Equipment Dues Replacement Parts Parts Storage Damages Material Purchases Tool Replacement Truck Signs Warehouse Space Files Company Tools Bank Charges Building Maintenance Legal Computers Trash Removal Incentives Postage Credit Card Sales Drug Testing Office Supplies Uniform Maintenance Retirement Plan Retainers Grounds Maintenance
Let's give the guy a 'handle' for managing things.
Start with IRS form "Schedule C." This is the place you list your business operations for the 1040 tax return. This document is where you will account for your expenses, so NOW is the time to set things up so that the information is available in a manner that you can use.
Part II is where you list your expenses. There are twenty six categories of business expenses, PLUS a section to discuss the 'home office' dedusction. You want to segregate your expenses according to these categories.
Along with this, I suggest you begin, and maintain, a file dedicated to 'master' documents. You can then reference this log in each specific category. That way, if a single receipt has expenses for multiple areas, you'll know where to find the receipt. (For example, it's quite possible that a single receipt will have charges related to both "vehicle expenses" (line 9) and vehicle leasing (line 20a)
The key is pretty simple: track EVERY expense, and assign it to the appropriate category. Reference any documents, or other substantiation.
What is 'substantiation?' Well, this is where you make a decision, explain your reasoning, and refer to it later. This can be more important than even having receipts.
For example, you can handle tools as either a direct deduction, or you can 'depreciate' them over time. What is important is that you can't do both for the same tool.
Another example is what you can do if, say, someone steals a JoBox full of tools. Replacement cost? Not so fast .... if you've been depreciating those tools over the past few years, your 'loss' is only what you have not yet deducted. This little detail might actually turn the insurance settlement into 'income.' That income, naturally, would allow you to buy new tools, thus starting the depreciation cycle all over again. (BTW, you can 'charge' your time tool shopping off against this loss as well).
It's all a matter of accounting - so an accountant is the guide you need. I have a deal with my CPA .... he doesn't do wiring, and I don't do taxes. What I do is supply him with the information he needs to make his decisions.
Thanks guys. My company is incorporated, so everything it does goes into a category - expense, asset or depreciable - and I have an accountant to do taxes. It's the things that might get missed or are unusual that I'm wondering about.
If you use a percentage of your home for business, you can also use a percentage of cleaning supplies. If you don't know about it, you don't save the receipts and your accountant can't help you.
Few Canadians know that they can use an incorporated company to use dental and glasses as an expense. (with limitations) Some accountants might think of it, but many don't.
So, here is a more specific question, to get you guys thinking. If I use my home for business purposes, I can use as an expense: - percentage of property tax - percentage of insurance - percentage of utilities - percentage of repairs - percentage of cleaning supplies - all of an internet connection - none of improvements (recommended in Canada) - ... - what else?
Then, just to keep it interesting, there are the less common ones, like cat food or promotional clothing.
Substantiation of expenses is a good piece of advice. When you need to explain the expense a few years after it happened, it will be hard to remember.
I don't know if you guys noticed this or not ... the OP is in Canada, not the US.
Some rules are the same. I don't want ideas only from Canadians. Sometimes Americans have good ideas, too. The link to the tax return wasn't exactly on point, for me, but the allowable expenses are the same.