Last updated November 30, 2020.
Does the thought of organizing your receipts fill you with dread?
We get it. It can seem overwhelming to keep track of your receipts on top of the demands of running your own business.
It may not be at the top of your list, but if you’re self-employed or a small business owner you are required by law to keep a record of your transactions. If you keep good records, you will avoid Canada Revenue Agency (CRA) fines in the event of an audit.
Plus, putting in the work now means you’ll save time when it comes to filing your taxes.
We’re all about making tax season as easy as possible, so we’ve outlined seven tips and tricks to help you keep on top of those records.
Use a business account and credit card
It's easy to lose track of cash transactions. Instead, use a credit card or debit card to cross-check your receipts. It’s a good idea to have a separate business account and credit card so you don’t mix personal and business expenses. As a bonus, if all transactions are business related, you can claim any associated expenses with that card or account. For example, the annual fee on a points card, or the interest from a balance carried from one month to the next, can be claimed if the transactions are business related.
Save your receipts
The CRA won’t accept your bank or credit card statements to justify deductible business expenses - you need an itemized receipt that corresponds with the transaction. The CRA calls these itemized receipts “source documents.” Hang on to those receipts for at least six years after your last Notice of Assessment, which is as far back as the CRA will ask to see them in the event of an audit. You can keep the physical receipts or digital copies.
Featured Resource: Tax Preparation Toolkit for Small Business Owners
Spend time reviewing your receipts once a month
We always recommend to our Members that they sit down for 30 minutes every month to review and categorize their receipts. This keeps things manageable as the year progresses and keeps you on top of your spending, so you don’t miss out on any tax deductions. We advise our small business Members to purchase an accordion folder every year to house all business receipts. These inexpensive folders are easy to obtain and allow you to organize your receipts by category and year, so finding a specific receipt is a snap in the future.
Make notes on the back of receipts
While COVID-19 is keeping a lot of us indoors, you might have meal and entertainment receipts from before the pandemic. And you could be in a position to meet with clients just a few months from now. For these expenses, write who you met with and the purpose of the meeting on the back of the receipt right after the meeting. That way you’re not struggling to remember details later. You can deduct 50 percent of your total meal and entertainment expenses for business purposes.
Create a spreadsheet for work-from-home expenses
Maybe you've always worked from home, or you've found yourself working remotely due to the COVID-19 pandemic. Either way, if you’re self-employed and work from home, you can claim a portion of cleaning materials, utilities and home insurance, along with part of your property taxes, mortgage interest and capital cost allowance. To be able to claim these expenses, the workspace in your home must be the principal place of business. You must also calculate the percentage of your home used for business and apply that percentage to the tax deduction. Create a spreadsheet to add up your receipts for home office expenses throughout the year. Make it a habit to update the spreadsheet once a month. You’ll save yourself the headache of scrambling to input and tally up all your work-from-home expenses at the end of the tax year.
Back up your receipts
Since receipts tend to fade with time, we recommend you keep a digital copy of each receipt. A good practice is to snap a picture of each receipt on your phone which you can upload to a central location later.
Software like Kashoo allows you to take a picture and digitize the receipt on the spot, then you can keep the hard copy in the accordion folder. If you only need to track expenses, like a realtor, Mint.com is a good option, and it's free.
Free Guide: Tax Preparation Toolkit
We know you’re dreading it, but it’s got to be done – and with a little preparation, you can fulfill your tax obligations without any stress. Our simple, easy-to-understand toolkit will teach you how to get organized for tax season. Download your free tax preparation toolkit to learn what information and key documents you need to prepare so you’re ready for the tax filing deadline. There’s even a printable checklist that lists all the documents you’ll need as a business owner, and tax write offs you shouldn’t miss out on. Get the prep out of the way so you can get back to running your business. Download your toolkit today.
If you’d like to learn more about how FBC can support your business, call us at 1-800-265-1002 or email [email protected] Unlimited consultation related to tax matters is a key benefit of FBC Membership. You can also book an appointment online.