"Don't base your decisions on the advice of those who don't have to deal with the results."
Income tax, accounting, bookkeeping advice for small business owners
Examples of bad advice, from people who meant well:
Too good to be true?
You know they mean well, but friends or family members may have given you advice which sounds too good to be true. Well, it probably is. There are times when it really pays to ask a professional. Getting accurate income tax and business advice is one of those times!
My accounting career began in 1981. I obtained my CMA designation in 1988 and founded this firm in 1990. I am a Chartered Professional Accountant (CPA) and Certified Management Accountant (CMA). I have specialized training in working with managers and in managing corporations.
Through my accounting firm, I have extensive experience dealing with the decisions of business owners and Canada Revenue Agency auditors, as well as constant tax update courses, reading the Income Tax Act and doing tax research. Through formal training, constant professional education and practical experience, I know how taxation and deductions work.
* Bad advice: You should lease a vehicle because it's 100% deductible
Truth: Over time, buying gets the same or better tax deductions. Leases force you to buy the vehicle at the end of the lease, if you "mile it out". Leases can have hidden charges.
* Bad advice: It's so easy to do bookkeeping, all you need is a program like Simply Accounting.
Truth: Bookkeeping is not intuitive, it is a learned skill. The accounting programs are tools but do not teach you how to do bookkeeping. I could buy a skill saw but still couldn't build a deck. I can teach you how to do manual bookkeeping in about an hour. You'll leave with a book with 20 to 30 personalized bookkeeping entries and expense columns customized for your company. We also tutor in Simply Accounting, Sage or QuickBooks.
* Bad advice: The company should always own your truck.
Truth: Whether the truck should be owned by you or the company depends on the truck's age, market value, financing, fuel efficiency and how many business kilometres are put on it each year. I can help you, with a quick calculation, to make the right decision about who should own the vehicle and how to deduct the expenses.
* Bad advice: Buy personal prepaid gift or Visa cards with company money.
Truth: The cost of a prepaid card is not income tax deductible. Receipts for valid expenses (paid with the card) are. Auditors disallow the cost of cards which creates unexpected corporate income tax with penalties and interest. PLUS, the auditor uses Section 15(1) of the Income Tax Act to add the same amount to the individual's personal taxable income.
* Bad advice: Deduct the odd fuel or insurance receipt for using the family car.
Truth: The deduction has to be tied into actual kilometres whether it is leased or owned. I can give you a mileage log and explain the deduction calculation.
* Bad advice: Dividends are the best way to get money from the company because they are tax-free.
Truth: Dividends are taxed on the person's income tax return. The person gets a tax credit which may eliminate the taxes. This income is not totally tax-free, it was taxed once already - in the company. I can tell you many advantages to a wages or a wage/dividend mix.
* Bad advice: You can withdraw $500 per month cash from your company and not report it as income.
Truth: Where do people get these ideas? Cash withdrawals from a company are taxable, if the company didn't owe you the money. Let's talk about "Shareholder's Loans" and how to get money out of the company in the most tax efficient way possible and how to get tax deductions for cash spent for the business.