Tax Tip Thursday
Financial Statements & Lists of Receivables
If you have $10,000 in receivables that are not collectible, this can save you between $1,200 and $5,300 in taxes
Keep Significant Dollars In Your Pocket
Today’s is a great tax tip for people who do not understand or do not pay attention to their financial statements, or for those who do not have any. This could keep some significant dollars in your pocket!
Do you have financial statements for your business? You should!
Financial statements are the report card for your business (or at least one of them)
I cannot tell you the number of times I have started working on someone’s books and their balance sheet is not in good shape. For some reason, I find the asset side of the balance sheet gets neglected when it comes to bookkeeping and accounting.
Here are some key areas that could have an impact on your income statement or taxes. At the very least, they could be misrepresenting your business!
Click the checks above or scroll down to learn more!
Fixed Assets
When I look at a client’s balance sheet, one of the first questions I ask is about fixed assets.
Do you have a list of your fixed assets?
90% of the time, the answer is no… Truth be told, I do not know if it is really 90%, but this is the answer the vast majority of the time.
The other thing that is very common is that the total of the fixed assets does NOT represent their value. This can be problematic as your financial statements are misrepresented (assets overstated).
You might also be depreciating assets that you do not own anymore. This is also very problematic as you are potentially claiming deductions that you are NOT entitled to.
You could also be missing the write down of assets that you no longer own. This could mean you are MISSING deductions that you ARE entitled to.
Accounts Receivable
Do you have a list of your receivables at any given time?
With appropriate bookkeeping, you will have a list of your receivables. Better yet, you will have a list of your receivables and how old they are — this is called an aging report.
Do you have receivables on your books that you will never collect?
If so, what do you do?
Did you know that you write those off if they are truly not collectible?
I happen on this all the time as well, and it is an easy way for me to help you keep more of YOUR money in YOUR pocket. If you have $10,000 in receivables that are not collectible, this can save you between $1,200 and $5,300 in taxes! It depends on your business type and tax bracket.
HST On Receivables
Along the same lines as your non-collectible receivables, if you are HST registered there is also uncollectible HST.
So, if you have uncollectible receivables, that means you previously recorded sales (and HST). If the receivables are uncollectible, then you are able to (and should) write off those sales and the associated HST. The reason I keep adding in the HST part is that I have seen many businesses write off their bad debts, but NOT the associated HST.
As an example, if you write off a $10,000 receivable, that will include about $1,100 in HST. If you write it off incorrectly (not separating out the HST), your net tax savings in a corporation would be $1,220 in corporate tax. If you write if off CORRECTLY — separating out the HST — your net tax savings would be $1,080 in corporate tax AND $1,150 in HST for a total of $2,230.
See the difference?
Have you been in any of these situations?
Are you unsure and want somebody skilled and with decades of experience to take a look?
Well look no further. Contact The Mad Accountant today to set your mind at ease.
Disclaimer:
This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal or tax advice nor can it or should it be relied upon. All tax situations are specific to each individual. If you have specific tax questions you should book an appointment for a 1 on 1 consultation.