Be Reasonable
Hello All,
Over the years, I have given advice to numerous business owners. Each of you has a unique set of circumstances and I endeavour to customize my guidance to the specific situation. There are however a number of commonalities and the one piece of advice that I find myself giving to almost everyone in a professional (and often personal) context (and this might be obvious) is to be reasonable.
When you run a business, you are regularly faced with financial decisions. You might have an accountant, a financial advisor or someone else that you can turn to for guidance but ultimately, it is up to you to determine the best course of action. Often there is specific guidance for your issue, much of which can be found with a simple search. Some issues are a little more gray and clear answers are not readily available. Worse, you might receive conflicting advice from different sources (the downside of a resource that returns millions of results for most queries). In this situation, we sometimes have to turn to our intuition (which is basically our collective experience that has been distilled into a “gut feeling”). Tapping into intuition is an art, that must be practiced regularly. The more you have to reach for it, the better it becomes.
So, being reasonable in a sense is tapping into your intuition. If you receive an offer for a million dollars from a Nigerian prince who simply needs your bank account details to initiate the transfer, your intuition will likely tell you to be skeptical. Similarly, if you are told you can expense the cost of your child’s birthday party to your business, it should raise some alarm bells, even your brother’s friend is a “finance expert” and told you it was totally legit. Of course, the answer might be a bit more nuanced (perhaps if business is discussed maybe you can deduct a part of it). The question though is does it make sense? Would a reasonable person do this? Would Revenue Canada (CRA) potentially look at this expense and immediately audit it. If they do decide to audit you, is it worth the hassle of saving a few dollars in taxes?
The goal of being reasonable from a tax perspective is to ensure that, while you should claim everything that you are entitled to, you try to avoiding raising the eyebrows of the tax agencies. This largely applies to soft expenses such as home office, travel, utilities, meals and entertainment etc. What percentage reasonably pertains to business use vs personal? Sometimes it it better to be more conservative when you are claiming something that is essentially an estimate. When CRA receives a tax filing it is passed through certain parameters. If it exceeds them, a red flag will be raised which then results in the dreaded audit letter. Once you have been red flagged the chances of it happening again are higher. All of this, of course can be somewhat avoided, by being prudent and reasonable.
Blog Post
A new blog post! This week, I discuss Personal Services Businesses and what everyone who is an independent contractor, or planning to become one, needs to know
What Independent Contractors Should Know About Personal Service Businesses
QuickBooks Tip: Matching Transactions in Banking Download
If you have entered at transaction such as invoice, bill or expense, QBO will often automatically create a match. You should then review the transaction to ensure that it has matched correctly after which you can simply click on match. One of the issues that you might encounter is that a transaction, that you know has been entered, is not matching. This might be because it is an older transaction, and QBO (for some reason) doesn’t automatically match transactions that are over a few months old. The other reason might be the amounts might be different (even if they are off by $0.01 it won’t match). In either of these cases click on “find match” within the downloaded transactions and the invoice/bill etc. should appear where you can match it. At the bottom of the transaction, you can “resolve” any small amount differences by selecting a bank charges account to which you can allocate the difference.
