5 common errors entrepreneurs make at tax time and how to avoid them

As real estate professionals, you’re always looking out for your clients. Your services often extend well beyond helping them buy and sell property and can include recommending resources to help carry out their real estate transactions and helping them avoid costly mistakes.

At the same time, if you’re self-employed, you have a lot to keep up with when it comes to balancing your clients’ needs with your own. Especially when it comes to keeping up with business responsibilities such as bookkeeping and filing your taxes. Fortunately, there are several resources you can take advantage of to help you.

One resource is the Canada Revenue Agency (CRA) Liaison Officer service. This free program offers in-person help for you to understand and meet your tax obligations. It can also help you reduce common tax reporting errors.

The Liaison Officer service can be conducted through one-on-one visits or group seminars. In both cases, a liaison officer will answer tax-related questions, discuss business tax deductions, explain general bookkeeping concepts and best practices, and provide an overview of helpful tools and services offered by the CRA. At a one-on-one visit, the liaison officer will even offer to review your books and records and recommend how to strengthen your bookkeeping system.

There are more than 130 liaison officers across the country. They’ve identified the most common errors they see and help to correct. In most cases, errors are made due to poorly kept books and records, and misunderstanding what a self-employed business owner is entitled to claim as expenses. The most common errors found are:

  1. Blended personal and business records. Blended records can cause confusion and mistakes when trying to separate business and personal expenses at tax time.
  2. Inadequate records to support automobile claims. It’s not enough to say you use your car for work. Without a logbook listing each date, destination, kilometers travelled and purpose of the trip, you won’t be able to justify expenses like gas, mileage and repairs.
  3. Claiming the personal portion of home expenses as a business deduction. If you use space in your home to conduct business, you may be able to deduct part of your related expenses, such as heat, home insurance, and rent or mortgage interest. The amount you can claim varies depending on whether your home-based workspace is used for any other function and how much of your total home space it represents.
  4. Improperly claiming meals and entertainment expenses. You can claim part of your expenses for food, beverages, and entertainment such as gratuities, cover charges and hospitality suites, but you need to clearly indicate the business reason for the expense. The maximum you can claim is usually half of whatever is less–the amount you paid or what is reasonable in the circumstances.
  5. Not tracking income accurately. In Canada, most income is taxable and must be tracked and supported with clear records. Keep a record of all income sources and amounts, including cash payments, tips and gratuities, self-employment income, investment income and benefit income.

Getting on top of your books and records can be the key to minimizing how much effort you put in at tax time, or later if the CRA asks you to back up your expense and income claims. A free visit from a liaison officer is a great way to set yourself up for success. For information on this service, or to request a visit, go to Canada.ca/crea-liaison-officer.

Do you have a favourite tool to do your taxes? Tell us about it in the Comments.

Harry began his career in the Canada Revenue Agency (CRA) as an Income Tax and GST auditor in 1998 at the Ottawa Tax Services Office. Harry moved to CRA headquarters in 2004, and has since held various positions with increasing levels of responsibility within the Domestic Compliance Programs Branch. Since May 2018, he has been the Director General of the Small and Medium Enterprises Directorate. Harry holds a Bachelor of Commerce (Accounting) from the University of Ottawa and is a Chartered Professional Accountant (CPA, CMA).

2 thoughts on “5 common errors entrepreneurs make at tax time and how to avoid them”

  1. It never hurts to be reminded of the possible deductions and how they are structured for write off purposes. I am lucky I have a tax accountant review calculate and file my taxes. Thanks for the tips and reminders.

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