Does the thought of organizing your receipts overwhelm you?
We get it. It can seem overwhelming when you are trying to do “all the things” in your business.
It’s probably the last thing you want to do, 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 the wrath of the Canada Revenue Agency (CRA).
Putting in the work now means you won’t want to cry yourself to sleep at night come tax time!
We’re all about making tax season as easy as possible, so we’ve outlined a few tips and tricks to help make your life easier.
Use a Business Account and Credit Card
It’s easy to lose track of cash transactions. To prevent the inevitable slippery slope of confusion at tax time, 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.
Save Your Receipts
The CRA won’t accept your bank or credit card statements to prove your business expenses; you need to have an itemized receipt (source document). You will need to keep 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 if you get audited. You should keep the physical receipts or digital copies.
Review Your Receipts Once a Month
We recommend that you sit down for 30 minutes every month to review and categorize your receipts. This keeps things manageable as the year progresses and helps you on top of your spending so you don’t miss out on any deductions.
Try purchasing an accordion folder every year to store all your business receipts. These inexpensive folders are easy to find (you can find them in the stationary aisle at your local dollar store) and allow you to organize your receipts by category and year. This is particularly helpful when you need to find a specific receipt within a certain timeframe!
Note Your Receipts
You may have meal and entertainment receipts related to your business. Be sure to write who you met with and why 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.
If you’re self-employed and work from home, you can claim a portion of expenses you incur from running your business out of your house. 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.
Back Up Your Receipts
Since receipts tend to fade with time, we recommend you keep a digital copy. A good practice is to snap a picture of each receipt on your phone to save in a folder on your computer, or if you are using a cloud based accounting system that allows you to upload receipts, you can store it there.
On the Go
If you find yourself losing receipts, try purchasing a small pouch for your purse or vehicle where you can store them on the go and they won’t go missing or get thrown out.
We hope this makes tax season just a little less stressful for you. 🙂