What is the Disability Supports Deduction (Attendant Care Expenses)?

By Randall Orser | Personal Income Tax

glyphicon_wheelchair--Tidbits 2014-09-03 TN‘One in Every 10 People You See Today Will Likely Have Some Sort of Disability.’ That’s according to The Canadian Foundation for Physically Disabled Persons. Fortunately, there is tax relief for those disabled who have continued to work or run a business, do grant research or similar work, or attend a credible educational program. It’s called the Disability Supports Deduction.

If you have impairment in physical or mental functions, you can claim a disability supports deduction if you paid expenses that no one has claimed as medical expenses, and you paid them so you could:

  • Be employed or carry on a business (either alone or as an active partner);
  • Do research or similar work for which you received a grant; or
  • Attend a designated educational institution or a secondary school where you were enrolled in an educational program.

You cannot claim amounts that were reimbursed by a non-taxable payment such as insurance. Expenses must be claimed in the same year they were paid.

You may need to have a T2201 Disability Tax Credit Certificate filed with Canada Revenue Agency (CRA), in order to claim any disability deductions. You can also file and then when the T2201 is approved, you can file adjustments for which years it applies.

What Expenses Are Eligible?

  • Attendant care services (except those services provided by your spouse or common-law partner, or to someone under 18 years of age)
  • Bliss symbol boards
  • Braille note-taker devices
  • Braille printers, synthetic speech systems, large print-on-screen devices
  • Deaf-blind intervening services
  • Devices or software
  • Electronic speech synthesizers
  • Job coaching services (other than job placement or career counseling services)
  • Note-taking services
  • Optical scanners
  • Page turner devices
  • Reading services
  • Real-time captioning or sign-language interpretation services
  • Talking textbooks
  • Teletypewriters
  • Tutoring services
  • Voice recognition software

When it comes to tax time, you can use form T929 Disability Supports Deduction. Do not attach this form or your receipts to your income tax and benefit return, but keep them in case CRA asks to see them at a later date. Expenses must be claimed in the same year they are paid. Unused disability support amounts cannot be applied to another year.

When filling out the T929 you will need to list the devices or services you are claiming in the first column. For each service you list, give the name and address of the organization or the name, address, and social insurance number of the individual that provided the service. If you use this form, just attach the receipts to it, and file with your income tax return.

For the purposes of this deduction your earned income should consist of at least one of these:

  • Employment income (including security options and other employment benefits);
  • Net self-employment income, either alone or as an active partner (not including losses);
  • The taxable part of scholarships, bursaries, fellowships, and similar awards;
  • Net research grants;
  • Any earnings supplement received under a project sponsored by a government in Canada to encourage employment; and
  • Any financial support received under a project sponsored under Part II of the Employment Insurance Act, or any similar program.

Some disability supports expenses can also be claimed as medical expenses. The person with the impairment in physical or mental functions can claim these expenses on either line 215 or line 330, or split the claim between these two lines as long as the total of the amounts claimed is not more than the total expense.

I would use the disability support deduction over medical expenses, as the deduction is a direct write-off from your income rather than just a tax credit (with a limit) like medical expenses.

The Disability Support Deduction can help the disabled person relieve their tax burden, as well as the financial burden of their disability.

Six Reasons Many Home Businesses Fail

By Randall Orser | Small Business

Close up of a pink piggy bank with dollars beside miniature house model on white background TNIt is a fact that as many home businesses are started, only a few succeed, many remain so-so, and many more fail with their owners actually losing their money. This is sad because almost all who ventured to do business at home have done so thinking that it is the best way to get out of the 9-to-5 rut while earning lots of money they never even dreamt of as employees. It’s when these owners face the stark reality about running their business that many find themselves falling short of their expectations. Below are 6 common reasons many home businesses become failures and what you can do to make sure your home business doesn’t suffer the same fate.

1. Lack of business plan.

Any business that launches without a plan is bound to fail. Any business owner who wants to succeed in a new undertaking must write a business plan to concretize his visions and what he wants to do with the business. The business plan maps out the directions the owner must take and the strategies that must be adopted to achieve goals.

2. Poor planning.

Many business plans are too optimistic they tend to overestimate the market and demand for the product or service. Sometimes, business owners underestimate the production costs and expenses of running their business. As a result, profits are smaller than projected. Sometimes, the operations result into a net loss and the business is rendered incapable of sustaining its own operations. Know your market thoroughly so you can make more realistic projections.

3. Insufficient working capital.

There are people who boldly start new businesses even without sufficient working capital. And when they finally run out of cash, many resort to mortgaging their homes, risking the financial security of their family. Therefore, make sure that you have enough business funds before establishing your home business. Keep your business funds separate from your personal money and don’t use one for the other. Commit your finances only up to a certain extent. Know when it’s time to quit but you don’t have to if you can manage your business well and grow it to be big and strong.

4. Lack of knowledge, experience and management skills.

Many home businesses fail because the owner does not know enough about the business. Or, he may be too inexperienced and lack the managerial skills necessary to make the right decisions in steering the business into profitability. If you wish to enter a particular industry and you do not have any prior experience in it, you should do your homework first. Read up and do the necessary research. Learn about production, marketing and financial management. Go back to school if you must so you can prepare yourself adequately for the demands of the business.

5. Lack of self-discipline and commitment.

Many home business owners think that they have the right to sleep late and work whenever they feel like. Unfortunately, such an attitude is a recipe for failure. Laziness and procrastination have caused the downfall of many home-based businesses. You should be prepared to toil hard if you want your business to succeed and this means having to work longer hours if necessary, and going out of your way to provide excellent customer service. However, make sure that you take breaks in between and get enough sleep to keep stress from consuming you. Home based businesses can turn into a monster if you don’t take full control at the onset.

6. Inability to cope with changes.

It is common among home business owners to be so absorbed in what they’re doing they fail to notice the changes happening around them. They are unaware of the latest trends and before they know it, the product or service they sell is on its way to becoming obsolete. As a home business owner, keep your nose onto the grindstone but keep your eyes and ears wide open. Maintain contact with your peers in the industry and try to widen your network. Be alert for hints of forthcoming changes so you can prepare to adapt yourself and your business to any developments.

Building your home-based business can give you a sense of fulfillment but you need to be disciplined and driven. Tap into your creativity to make the most out of the many opportunities that are present. If you can’t commit yourself to nurture your business through the highs and the lows, then you might as well continue being an employee and enjoy a more peaceful sleep at night.

Can I write Off Tax Preparation Fees?

By Randall Orser | Personal Income Tax

Taxes On Calculator Shows HMRC Return Due TNThis is a question I get a lot from my clients. Most people believe that since someone else is preparing their taxes, that the fee can be used as a deduction, as accounting fees do show up on the tax return. However, this is not necessarily the case.

Employees

If you are employed, you cannot deduct accounting fees. There are exceptions (isn’t there always). If you are employed on a commission basis or have employment expenses then you can write-off accounting fees for the preparation of the numbers for the return as well as preparation of the return. Basically, you can deduct a reasonable amount paid during the year to comply with the requirement to file a tax return.

As an employee, you may also deduct accounting fees relating to:

a)     An assessment of tax, interest or penalties under the Income Tax Act or a similar provincial law,

b)    A decision of the Canada Employment and Immigration Commission, the Canada Employment and Insurance Commission, or a board of referees or an umpire under the Unemployment Insurance Act or the Employment Insurance Act,

c)     An assessment of income tax, interest or penalties levied by a foreign government or political subdivision thereof, if the tax is eligible for a foreign tax credit, or

d)    An assessment or decision under the Canada Pension Plan or a similar provincial plan.

You may deduct amounts expended in connection with accounting fees (legal fees too) incurred for advice and assistance in making representations after having been informed that the taxpayer’s income or tax for a taxation year is to be reviewed, whether or not a formal notice of objection or appeal is subsequently filed.

Business or Property Owners

For the small business person or property owner, accounting fees are allowable deductions where they are incurred in connection with normal activities, transactions or contracts incidental or necessary to the earning of income from a business. A deduction may therefore be taken for accounting expenses in connection with a broad range of routine business functions, such as

a)     Preparing contracts in relation to the sale of inventory,

b)    Obtaining security for and collecting trade debts owing,

c)     Preparing financial records and minutes of shareholders’ and directors’ meetings,

d)    Making annual corporate filings,

e)     Routine or regular audits of financial statements,

f)     Conducting appeals in respect of, for example, sales tax including Goods and Services Tax/Harmonized Sales Tax, excise, municipal, or property taxes, and

g)     Watching legislation (including customs and other regulations) affecting the business operations of the taxpayer.

In addition to the above, you can deduct accounting fees (and legal) incurred in connection with

h)    (a) Issuing bonds, debentures or mortgages,

i)      (b) Borrowing money for certain business or property purposes,

j)      (c) Incurring indebtedness that is an amount payable for certain business or property purposes, and

k)    (d) Rescheduling or restructuring a debt obligation

For the business and/or property owner, generally any accounting fees incurred to facilitate in the bookkeeping, preparation of government remittances and tax returns, filing information with the government, and other accounting related activities of the business are deductible for income tax purposes.

Tax Preparation and Filing Help for the Home Business Owner

By Randall Orser | Small Business

One Thousand dollars, Tax Showing Expensive Taxes TNHome business owners can easily prepare their own tax return but many choose to have it done by someone else. They find it easier that way; besides, many home business owners in Canada and the United States think that their country’s income tax laws are complicated and so they prefer not to mess with them. In fact, you have a much higher chance of being audited if you file your own small business income taxes.

Who Can Help in the Tax Preparation and Filing?

When preparing and filing their income tax returns, taxpayers often seek the services of professionals such as attorneys, certified public accountants, tax preparers, or enrolled agents. Alternatively, they can use tax preparation software and online services. Using professional tax preparation services or paid preparers, however, is not entirely foolproof. Not only are their fees expensive but also you, the taxpayer, remain responsible for all the content of your tax return including errors, if there are any. You are liable for any deficiency, interest, and penalties that may result because of erroneous items in your return. For this reason, it is important that you review your tax return for accuracy before signing it.

Other than the honest mistakes, what you will also need to watch out for are the unscrupulous tax preparers. Their fraudulent practices can cause you grave legal and financial problems even if you are not aware of them. Such practices include manipulation of income figures, inflating personal or business expenses, claiming bogus deductions or unallowable credits, and overstating exemptions that allow them to prepare and file falsified tax returns in behalf of their clients.

How to Choose a Tax Preparer

Choose a tax professional who is experienced, honest and reputable. Ask questions about the length of his experience and any training in tax laws that he may have received. Ask people that you know who have used the services of the preparer. Find out if they were satisfied with the kind of service they received.

Choose the preparer who would most likely be available to answer questions about the preparation of your tax return in case of audit. Do remember that tax professionals must sign your tax return and provide you with a copy for your records. Beware of the preparer who does not want to sign your tax form. On your part, never sign a blank tax form and neither should you sign in pencil.

Avoid tax preparers who guarantee a refund or promise larger refunds than anyone else. Only the CRA, after reviewing your return, can determine if you are entitled to a refund. Also, if they prepare your tax return properly, the resulting figures will be similar to what other preparers can get. You may also want to consider the tax professional who can offer you electronic filing or other payment options you may choose.

Make sure to discuss the fees before you allow the tax preparer to work on your return. Fees are usually based on the complexity of your tax return. It follows that you will have to pay a higher fee if your return is complicated or if the tax preparer will need to spend longer hours in its preparation, such as going over a significant number of claims and supporting documents that still need to be sorted out. Avoid a preparer whose fee is based on the amount of refund you are expected to receive.

Keep in mind that your tax return does not have to be prepared by a tax professional. You can request a knowledgeable friend or relative to help you out. Or, you can even make use of the free tax preparation services that are available nationwide, for basic returns only. Check the free programs of the CRA and its industry partners.

However you prepare and file your return, the important thing is for you to file and pay your income tax. If you willfully fail to file and pay your taxes, you risk having major penalties and interest applied against any balance owing, plus the penalty can increase because you were neglectful over too many years for not filing.

Are you a first time Tax Filer? Here are some tips for you.

By Randall Orser | Personal Income Tax

Tax In Piggy Shows Taxation Payment Due TNYou’re lucky enough that this is your first year filing a tax return. How exciting! There are many reasons you’re filing a return for the first time, such as you’ve started your first job, or maybe it’s your first year of university. Welcome to the wonderful world of taxes. While it’s not rocket science, there are some things to know before filing for the first time.

Do you need to file a tax return?

Probably yes. Did you earn income in the year? Did you go to university/college? Even if you were in school, and earned no income, you need to file as you can transfer some of your credits to a parent/guardian or spouse. Also, to get your credits for GST/HST (over 19 years old), child tax benefit, and others, you’ll need to file a tax return. In the end, it’s best to file a tax return, even if it’s a nil return.

Be Prepared!

Being prepared is a must when it comes to filing your taxes. You need to ensure you have all our slips (T4s, T4A, T5s, T4E, etc.) for your employment and other income.

Are you in university/college? Don’t forget your T2202 Tuition/Education Certificate (you may have to login to your student account to get the T2202). You’ll need the T2202 to know how much tuition applies to the current tax year, plus it states how many months of part-time or full-time schooling you did in the year. You do not write off books or other school fees, as the credit for the number of months of schooling takes care of this. Also, you will get a T4A slip (Box 105) if you received any scholarships, bursaries, fellowships or grants, so don’t forget this slip.

Do you qualify as disabled? You may want to look into filing a T2201 Disability Tax Certificate. You’ll need a doctor to fill this out, and ensure he does a good job; whether or not you get the credit depends on how well he writes the T2201. This gives you a major credit against any income you earned in the year, and can be transferred to a spouse, parent, or caregiver.

There may be some deductions you are able to claim. Canada Revenue Agency (CRA) allows you to claim for donations, retirement contributions, employment expenses, and more.

Did you make donations to charity? If you did contribute to charities during the year, you should have gotten receipts. The receipt should state the charity’s name, registered number with CRA, and the amount. If you can’t find one, the charity should be able to et you a copy; some even allow you to go online to get a copy.

Did you make RRSP contributions? You can make contributions up to March 1st of the following year, so ensure you get all your receipts for any contributions you make. Usually you’ll get these sometimes in January/February for the prior year contributions, and later in March if you made any contributions in January or February.

Do you belong to a union or professional organization? Union dues generally show up on the T4. Professional associations, such as the College of Teachers, send you a receipt after you pay; some unions send a receipt if it’s not taken off your paycheques.

Did you move during the year? If you moved more than 40 KMs to either your place of employment or school, you can claim moving expenses. The cost of movers, renting a truck, hotels, meals, vehicle expenses (for your car), lease cancelation costs, costs of selling your old residence. Of course, you’ll have to deduct any allowance or reimbursement you got from your employer.

Did you have to purchase supplies in order to perform your job? Employment expenses can add up for many people. Employment expenses can include: accounting/legal fees, advertising/promotion, meals/entertainment (50%), lodging, parking, other automobile expenses (based on mileage), supplies (postage, stationery, etc.), home-office expenses (if you are required to have on by the employer). Trades people, apprentice mechanics, artists, and musicians can deduct expenses that relate to their profession, such as hammers, saws, musical instruments, art supplies, and more.

Some other information you should have at the ready when it comes time to file is your current address, phone number, email address, social insurance number, and birthdate.

The best thing to do is gather all your information you have that you believe will relate to your taxes, and when it comes to filing go through everything as you enter your slips. Or better yet, let a professional handle the whole thing, and relieve you of the headache.

Remember to keep all your slips, receipts, etc. for 6 years after the filing year.

6 Economic Questions Business Owners Should Ask About Their Company

By Randall Orser | Small Business

Question Marks Over Man Shows Confusion And Uncertainty TNThe business cycle is important for business owners because the ups and downs in the economy affect the ability of a business to stay afloat financially. Changes in the business cycle are measured against long-term trends.

This article offers an introduction to why managers and business owners need to understand the business cycle and a list of six questions that business owners should consider regularly to keep their pulse on the business cycle. Following changes in economic factors such as supply and demand in the local, regional, national, and global economies is essential for sound business planning.

According to Dr. William B. Conerly in “Businomics,” managers need to know two key things about the business cycle. First, “The manager would like to know when downturns—and upturns—in sales are coming.” For example, in an economic downturn, sales may drop and potentially hurt company profits. Second, “Managers would also like to know when their costs are going to rise or fall.” For example, inflation may cause the cost of goods to rise, resulting in the need for the company to raise the prices for its customers.

If you are a manager, you need to acquire an elemental understanding of economics to assist you with studying changes in your market and in the economy in general. What kinds of questions can you ask yourself to guide your monitoring of the economy? Just waiting for the news media to draw your attention to significant changes in the business economy may not be enough to protect your company.

Here are six questions about the relationship of your company to the business cycle to consider:

1. How have my business costs changed over the last four quarters? If you look at your costs over time for supplies, labor, services, and so on, you can identify trends either upward or downward based on fluctuations in the economy. Decreasing costs may increase your profits, whereas increasing costs may decrease your profits without adjusting your prices.

2. How have my sales been for the last year? Just like studying cost trends, you can study sales trends. You should know on any given week or month how your products are selling overall and how the major categories of products are doing. If you have a flagship product, you might need to prepare more detailed sales figures for that product.

3. How can I decrease my expenses to create more profit? Deciding whether you need to decrease expenses is a difficult issue. If you are hit with an economic downturn, you may be forced to cut your expenses quickly. Knowing when to trim the overhead of doing business is a skill that you build over time.

4. How have my profits changed in the last year? Because your costs are always changing, you can choose not to view profits as fixed amounts and study their trends upward or downward from quarter to quarter and year to year. You can study profits as a percentage of total sales for a constant measure of profit trends over time.

5. Do I need to increase the amount of savings for my business? Savings is an important consideration. Just like many households, many smaller businesses have nominal savings. Often smaller businesses rely upon credit to get cash when needed. If you set the amount you will save out of your monthly or quarterly profits as a percentage, you can adjust that percentage based upon changes in the economy.

6. Do I need the ability to borrow more money to support my business? Sometimes your business will be short on cash. For example, if you spend a lot on purchasing inventory and then you have a drop in sales, your business may take in less money than you were counting on to meet all monthly expenses. The ability to borrow as much as you need for unforeseen economic changes is crucial for keeping the company solvent. You can study your business to determine how much available credit your business might need to climb out of a monetary hole when changes in the business cycle hurt your financial position.

There are many other factors to consider when you study your business activities in relation to the fluctuating economy. The foregoing six questions serve as a starting point for exercising your business mind constantly about the business cycle. The more you study the trends of your business, the better you will become at making strategic moves to adjust business activities such as spending, saving, and setting prices.

How to spend your tax refund?

By Randall Orser | Personal Income Tax

Tax Refund TNIf you are expecting a large tax refund this year, it can be exciting to think about everything you can do with it. A few hundred dollars could buy you new clothes, a few thousand dollars could be a down payment on a new car, or the money could be put toward retirement or future emergencies. When should you save your refund and when can you splurge?

Never splurge your entire tax refund if you aren’t financially secure. A financially secure individual will have no debt besides a modest mortgage and will have a healthy emergency fund set aside. A good emergency fund will have a minimum of 3 months of living expenses, but preferably 6 to 8 months worth of living expenses.

If you have any debt besides a mortgage, first set aside $1,000 in a savings account. This is a short-term emergency fund that is necessary to have until your debt is paid off. It should be enough to take care of many small emergencies that may arise until your debt is paid off. After that, the rest of your refund should be put toward your debt.

If you don’t have any debt, the refund should go toward your 6 to 8 months of living expenses. This emergency fund will keep you covered for at least 6 to 8 months if you lose your job, or it can cover emergency expenses such as car problems, medical expenses, and other emergencies. Everyone should have an emergency fund, no matter how high their income level.

Tax refunds are commonly used for large expenses or upgrades. For example, if your water heater breaks, use your tax refund. If your car is barely hanging on to life, use your tax refund to get a good used car. If you have a sizeable refund, it may be enough to put down on a new house.

What about splurges? Should you always use your tax refund for boring necessities? From a perfect financial standpoint, you should put 100% of your refund toward debt or save all of it. However, you should be rewarded for good financial choices from time to time, and you should enjoy life. Spending money on fun things like big screen televisions, vacations, and new clothes isn’t always a bad thing.

If you have no debt, you have an 8 month emergency fund in a savings account, and you have a good retirement account set up, don’t feel bad about spending your refund on something fun like a cruise or a bathroom remodel. You earned it. You worked hard to stay out of debt and save enough money to be secure. It is important to spend money on things you enjoy from time to time.

If you have been paying off debt and you only have a little left, or you have a good head start on your emergency fund, you can spend some of your refund on a splurge. For example, if you have 3 months of living expenses saved up that amounts to about $6,000 and you are getting a $3,000 refund, put $2,000 in your savings account to increase your emergency fund to 4 months of living expenses and spend the remaining $1,000 on whatever you please.

If you don’t know how to manage your money, you won’t know how to best spend your tax refund. Learn about financial planning and budgeting to get your finances in order. Once you are on track, you can spend your tax refund more carefully and get the most out of it. Balance financial security with responsible spending on things you enjoy.

What are Key Performance Indicators for Small Businesses?

By Randall Orser | Small Business

Key Performance Indicators diagram TNWhat is the purpose of your business?  What do you need to do absolutely correctly in order for you business to succeed?  What are the activities that you absolutely cannot screw up without losing significant amounts of business?

These questions are answered by examining your Critical Success Factors or CSF’s.  Critical Success Factors are defined as those activities that a business undertakes that allow it to succeed.

It’s more than just the numbers on your financial statements.  Some CSF’s relate to measures of quality, customer satisfaction, and how efficiently you are using your resources.

However, before you can do any analysis on your company’s Critical Success Factors, you need to examine your business strategy.

Ask yourself the following questions: Why is my business better than my competitors’? What do my customers tell me that they like about my business? What don’t they like? What action could I take that would make my customers go elsewhere?

Note that two of the four questions relate to your customers’ perception of your company, not your impressions on what they think.  It’s an important distinction as your customers may have a very different view on you and your business than you think.  How do you know what your customers think?  Ask them!  Set up a procedure where they are asked to fill out a feedback form when they purchase your product or service.  Ask them what they like and don’t like.  Ask why they might choose to shop elsewhere.  Ask what you are doing well and what you could be doing better.  You may be surprised by the results.

The answers to the four questions above give you a list of those activities that you need to make sure your business is doing regularly and consistently.  Review your list.  You will most likely find that the items on it relate more to your customers’ perceived value in your product or service, not just its cost.  Companies that compete only on cost will always suffer in the long run as there will always be someone else that can do it cheaper.

Now that you have defined your Critical Success Factors, you need to be able to make sure you are on track.  But how to measure them, especially when some are non-financial?

The measurements of Critical Success Factors are called Key Performance Indicators or KPI’s.  To recap the jargon, Critical Success Factors are things your company must do to thrive and Key Performance Indicators are the measures of those things.

Here is a typical list of Critical Success Factors:

  1. Personal service- making sure the customer gets to speak with a staff member when the purchase is made.
  2. Product quality- making sure the product does what you say it will do and is durable.
  3. Quick problem resolution- making sure all customer complaints are handled quickly and in a manner that impresses the customer.
  4. Same-day shipping- making sure that your product gets shipped out to your customer the day the order is received.

All four of these CSF’s can be measured, even though some of them are non-financial.

Those are some of the ways that non-financial indicators can be measured and tracked.  Once the measures have been determined, it’s important to set your expectations to measure against.  For example, if your target is to ship 100% of your products same-day, then you would gauge the actual against the standard (100%).

What would happen if your Key Performance Indicators start to slide?

Let’s say you’ve been tracking your key performance indicators for months and this month, several of the indicators seem to show problems.  What do you do?

When this happens (as it inevitably will), you need to discover the source of the problem.  A business could face many problems that would impact its key performance indicators including employee illness, cash flow crunch, breakdown in processes, and inattentiveness to customer needs.  If the problem is short term, such as employee illness, there is no need to take drastic action.  However, you will want to see if there is a way to make your operations less vulnerable to the illness of a single employee.

If the problem seems to be in the underlying processes, it’s time to put new procedures in place to make sure the critical success factor is being met.  Have there been changes in the external business environment?  New competitors in the industry?  Quality control problems with the inventory?  These are all situations that need a rethinking and reformulation of your business plan.  If you can see the icebergs, you will have a much better chance of being able to steer around them.

What To Do If You Forgot to File Taxes?

By Randall Orser | Personal Income Tax

Savings And Finance Concept TNEvery year in Canada we must file a personal income tax return by April 30th (June 15th for those who are self-employed). As with anything in our busy, hectic lives, we do forget; however, what if it’s your tax filing that you forgot? That can have serious consequences depending on what you owe, and for what benefit programs you are qualified.

The first thing is Don’t Panic! Okay you will, but calm down. If you’ve realized you haven’t filed your taxes, and it’s not too late in the year, you’ll be okay. Yes, if you owe money, you’ll have a penalty and interest, however, catch it soon enough and it won’t be that much. Of course, if you are getting a refund, then you won’t be charged any penalty. And, getting benefit payments will definitely be delayed, as you haven’t filed, though you will get a catch-up payment.

Canada Revenue Agency (CRA) has now allowed the electronic filing of tax returns until January of the following year, so for the 2013 filing year you can electronically file until January 16th. Eventually, I believe, we’ll be able to file electronically for any tax year any time.

Many people end up not filing for fear that they will owe, or owe way more than they can pay at the moment. It’s much better to file and owe than not file and owe, as CRA tends to get a bit anxious when they realize you owe, but haven’t filed and paid yet. Of course, these same people think they’re going to owe tons of money, and, in the end, don’t owe near as much as they thought, or, hilariously, get a refund. I love the expression on peoples’ faces when I tell them they owe $X, and they were thinking $XXX.

What are the penalties for filing late? If you owe tax for 2013 and do not file your return for 2013 on time, CRA will charge you a late-filing penalty. The penalty is 5% of your 2013 balance owing, plus 1% of your balance owing for each full month your return is late, to a maximum of 12 months.

For example, you owe $3,200 and don’t file until November 15th 2014. In this case you owe $583.91 in penalties plus 5% interest compounded daily (approximately $194). That’s a total balance owing of $3,977.91. Your penalties/interest are 24.3% of the original balance owing.

If you failed to report an amount on your return for 2013, and you also failed to report an amount on your return for 2010, 2011, or 2012, you may have to pay a federal and provincial/territorial repeated failure to report income penalty. The federal and provincial/territorial penalties are each 10% of the amount that you failed to report on your return for 2013. Your late-filing penalty for 2013 may be 10% of your 2013 balance owing, plus 2% of your 2013 balance owing for each full month your return is late, to a maximum of 20 months. That can get quite steep depending on how much you owe.

Using our example above of owing $3,200, and this is another year of filing late your penalty would be $764.09 for a total of $3,964.09, and interest would be $203 for a total of $4,167.09 (30.2% of the original amount owing.

From our examples above it is much better to pay upon filing (or pay by installments when you believe you have a big balance owing). If you know you’re going to owe, but don’t have the funds at filing, file anyway and work out some kind of payment arrangement with CRA.

Do you have multiple years to file? Can’t find your slips? If your slips are normally filed with CRA (such as T4s, T5s, etc.) then you can request copies and use those to file your returns. You will have to paper file for 2012 and prior. If you believe you will owe for these prior years, you may also want to look into the Voluntary Disclosures Program.

With the Voluntary Disclosures Program, you may file a disclosure to correct inaccurate or incomplete information, or to provide information you may have omitted in your previous dealings with the CRA. More specifically, this includes information you have previously reported that was not complete, information you have reported incorrectly, or information you did not provide previously to the CRA.

Canada has a high compliance rate (94.5%) of people who file their taxes on time. If you find you’re not one of those, you may need to look into why you’re always late filing. Are you using a tax preparer now? Maybe you should. I hound my clients to get me their stuff, and most appreciate that. Of course, once you’re caught up always ensure you file on time after that so you avoid higher penalties.

How Do You Calculate a Break-Even Analysis for Your Small Business?

By Randall Orser | Small Business

Money raining down on a piggy bank TNYou’re running a small business, or maybe you’re thinking about starting one. You don’t want to lose money, and you don’t want to go out of business. So, how do you find out how much you need to earn to break even? The answer is simple. You do a break-even analysis.

Don’t worry, a break-even analysis sounds more complicated than it really is. It doesn’t require a lot of math skills. It just requires some thought and a basic equation.

First, what is a break-even analysis? Very simply, a break-even analysis is the process of discovering your break-even point. What’s a break-even point? It’s exactly what it sounds like: it’s the point where your expenses are exactly covered by your income. It’s where you “break even”. Every sale above your break-even point is profit in your pocket.

Once you know your break-even point, you know exactly how much you need to earn to break even. You will also see whether or not you can realistically stay in business.

For example, if your break-even analysis shows you need to sell 1000 widgets every year just to cover your expenses, and historically you’ve only sold 200 widgets a year, then you’re going to have to do a lot of planning to get your sales up to 1000. You might need to dramatically lower your expenses or come up with a better marketing plan to break even.

So, how do you calculate your break-even analysis?

The first thing you do is add up all your fixed costs. This means all the expenses you have to pay whether you make any sales or not. Your fixed costs include your rent, utilities, and any salaries. Your business may have other fixed expenses like membership dues or insurance premiums. As an example, if you made widgets from home you might discover your fixed costs are $10,000.

Next, estimate the average price of your product or service. To continue the widget example, if all your widgets are sold for $100 each, then $100 is the average price of products. But what if your widgets have different prices? Then you find the average price. You find the average by adding up the different prices and dividing that by the number of products.

For example, say you offer 2 different widgets: one is $50 and the other is $150. To find the average price of product, add 50 + 150 and divide by 2. Your average price of products would be $100.

Finally, estimate the average cost of your product. In other words, how much does it cost you to produce each widget? Or, if you provide a service, how much does it cost you to provide that service (travel expenses, phone calls, etc.)? To conclude the widget example, let’s say your widgets cost $10 to produce.

Okay, now you know your fixed costs, the average price of product, and the average cost of product. You’re almost finished. All you have to do is plug these numbers into the break-even equation. This equation will tell you the dollar amount you have to make to break even.

The break-even equation is:

Fixed costs/ [1 – (average cost of product/average price of product)]

So, for the widgets example, take the fixed costs of $10,000 and divide that by 1 – (10/100). Remember, $10 is the cost of product and $100 is the price of product.

$10,000/[1 – (10/100)] = $10,000/.9 = $11,111

The equation shows that you must make $11,111 in order to break even.

Want to know how many widgets you’ll have to sell to get there? Easy. Just divide this number by the average price of product. For the widgets, divide $11,111 by $100 and you get 112 (round up to the next whole number).  So, in this example, you must sell 112 widgets every year just to break even.

Calculating a break-even analysis for your small business is the best way to find out how much you need to earn to stay in business. Once you know your break-even point, you can design marketing plans and control your expenses to maximize your earning potential.

Your break-even analysis will tell you exactly at what point you start turning a profit. Every sale above your break-even point will be money in your pocket, so take advantage of the break-even analysis to make better business decisions and increase your profits.

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