Spring is coming. And that’s a busy season for real estate agents. But it’s also when the business admin side of things gets hectic, too. It’s income tax time. Before you start swearing at the pile of receipts and the long 2016 tax forms that are taunting you, breathe. And read our tips on how to manage your taxes.
Make a list, check it twice
Don’t know where to start? Thankfully the Canadian Revenue Agency has a check list for you with its Checklist for new small businesses. Sure, the list is a long one, but if you check off everything, you will have an easier time doing your taxes and your accountant will appreciate it. It’s also worth checking out if you’ve filed business taxes before, as year to year, rules and exemptions change.
Save, save, save
If you haven’t created savings accounts for harmonized sales and income taxes, do it now. You DO NOT want to go into debt for paying taxes. After all, this is money you have – you just have to avoid spending it. Whenever you get paid, put the HST into one account, and then put 20 to 30 per cent into another. “Base [what you save for income tax] on prior years,” says Marcello Spadafora, regional director for Investors Group Financial Services in Oakville. “For your first year, I suggest to be a bit more conservative and save 30 per cent of your income.” Don’t put this money into risky investments. Instead go for a high-interest savings account or a GIC, a Guaranteed Investment Certificate.
Get organized
You know you should be organized. That’s obvious. But as a real estate agent, having everything in order is extra important for taxes. If you don’t, you could end up paying more taxes than you should, or worse, get audited to pay even more money to the government because you didn’t have your receipts all in a row. Spadafora, who also instructs financial classes at the OMDREB offices, including sessions on tax planning, says to get your receipts organized into folders labeled: gas, food and entertainment, cellphone, credit card, etc.
Log everything
You’ll need to log the kilometres you drove for your business. And you’ll need to add up all the above categories of receipts. But thankfully there are apps for both, like Mileage Expense Log for your car use and QuickBooks for organizing your receipts. Also, get into the routine of doing these things every day for your 2017 tax return. “It may seem like a pain because it’s so tedious, but it’s a good habit to build,” says Intuit tax analyst, Peky Tsang. “The more diligent you are the more you will be able to maximize your tax savings.” If you log every day (it’ll just take a few minutes), QuickBooks will automatically create the reports you need to file. “You still need to keep track of receipts, in case CRA does an audit,” says Tsang. “[The Agency] wants that paper trail.”
“Taxes are a big stress for a lot of people,” Spadafora says. But if you are organized and have good daily logging habits, “it just makes accounting so easy.”
Write everything down
While your memory is fresh, write down on the back of the receipts why you spent this money for your real estate business, says Spadafora. If CRA audits your expenses, it is going to ask why you are claiming these business expenses. And if you don’t already do this with your receipts, get into the habit now.
Get a business credit card
“Have a separate credit card for business expenses because you will have a track record, as well as the receipts and notes to correspond with the credit card statements,” says Spadafora. “You will have a bullet-proof business.”
Bonus Tax Tip:
This one is for your clients. And as the messenger, you will be giving your clients a great service, says Tsang. She says that there are new changes for principle residence reporting. “Starting on January 1, 2016, CRA requires people to report houses that sold from that date on to gain access to the principle residence capital gains tax exemption. Letting your clients know about this information is helpful and another level of service for agents.”
