taxation

Loki waiting for me to stop working and take her for a walk!

Terms of Reference:

The language of the banking, taxation and economy can be confusing or just plain strange to the uninitiated.

v Assets – what you own

v Liability – what you owe

v Income – what you are earning

v Expense – what is it costing you to earn the income

v Equity – earnings after expense plus what you have put into or taken away from the business

v Debit –(always left column of the ledger sheet) a transaction against a ledger :

Ø Assets including Bank – you are putting money in

Ø Liability– you are increasing what you owe

Ø Income – you are losing income

Ø Expense – you are gaining a usable supply

Ø Equity – you are taking out of your pocket and putting it into your business

v Credit –(always right column of the ledger sheet) a transaction against a ledger:

Ø Assets including Bank – you are taking money out

Ø Liability – you are decreasing your debts

Ø Income – you are making money

Ø Expenses – you are reducing you costs.

Ø Equity – you are putting money in your pocket and taking it from you business

v Accounts – a place to allocate any of the above

v Ledger – the data sheet of the accounts

v Bank Statement – a ledger data sheet of the transaction per account that you own in the bank

v Credit Card Statement – a ledger data sheet of the transactions per account that owe to the company

v Income statement – a report of the accounts of income and expenses

v Balance Sheet – a report of the accounts of assets, liabilities, and equity

v Invoice – the document you present to a client for payment of services or goods and what you receive from a contractor or supplier for services or goods

v Receipt – a document that shows payment of goods or services – can be the same as an invoice but should not be considered to be an invoice when there is only the confirmation of payment transaction.

v Capital Cost – a item that is purchased by you or your business that has a long term use

v Depreciation – a deemed cost based on a prorated value of use per year for Capital Costs

v Proration – the relation of a given amount to 100.00 – a duel valuation of the expense based on time, usage or similar cost allocation.

v Legislation – an act or statute of government to implement rules of conduct, process and taxation

Date – this is a little understated as it is only the Date. However the date of the transaction is a determining value in the processing of all of the above. For this purpose I will use the date system of month/day/year. Be forewarned that there is no legislation in the implementation of the date in the receipt or invoice. So have fun with this – no amount of patience can unravel the date of 07/03/09 on the lone receipt that resurfaces after a year or more of collecting dust at the bottom of the cupboard! And yes, the size of the receipt is not necessarily the issue; big ones do this as well as the small receipts (size and value). It is a part of humanity that we really need to accept – we lose things and they sometimes come back. If we are organized and aware of this – we can spot the whole in the accounts that this missing invoice.

To date this year, I have prepared 190 tax returns – T1 Generals, T2 Corporate and 1040 US tax forms. It sure adds up. And quick.

The spring time for me is brutal. Thousands of receipts are queried by these hands and eyes. Coffee is good for this. Especially when you punctuate the day with chocolate covered espresso beans! I digress but in my defence it was a blog about coffee that brought me to this – tax season.

Tax-season will be upon us shortly. All too soon my phone will ring and the appointments will be set. My clients will arrive with bags, boxes and envelopes. Some will have tallied the mountainous receipts but mostly they are in order.

The receipts are in order because they have been here before and know the drill. It takes a few times with new clients to get that they need to keep the receipts. Of course some receipts are easy to reappear like the dentist and chiropractors. A quick phone call, the fax number passed on and the receipt appears here in my office. Others are elusive and take time to make it to my desk.

For some, all I can say is “Sorry, if you are audited then you will owe. If the receipt dose reappear, then we can adjust the tax return(s) for the year and claim the expense or credit.” Sometimes the client walks away never to return. Most take the lesson and begin the process of keeping the correct receipts.

So then during the year I get the call, is this receipt worth keeping, can I claim it. If yes, they then keep it and safely. It is important and will possibly reduce the tax liability if they do have taxes owing.

But what do you really need to keep for our compliance? And why compliance?

Compliance is the new buzz word with governments. It a state of being that we are following the rules as set by the elected ruling party.

Now the funny thing that I see is that the elected ruling party inherits a slew of civil servants to set up new rules with the new ideas of governance. As these new rules must be legal, the language is the language of lawyers and because it deals with finances, the language of the accountants are added to the mix. For most it is confusing. Some days it confuses me too, but I can get over it! Part of my hardwiring is figuring out intricacies like a puzzle.

My clients are teachers, counsellors, artists, retailers, retired, new immigrants, and corporations. Some are just simple folk, not educated nor are they well enough to maintain compliance with complex rules. Really, it is the people that I enjoy the most. The stories of travel, new jobs, new businesses, loves and losses. And I enjoy helping them though the rules of taxation.

Thanks for reading this. I will be adding more in the coming weeks as I begin to prepare for tax season.