2010 Tax Time. Use It To Your Advantage.

by Patricia Cullen on February 21, 2010

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Taxes.  Every year I learn something new I wish I had known years prior. And this year is no exception. During a very in depth interview with Mark Yoshihara, CA of Backspin Entertainment Business Services, we discuss what you can and cannot expense and a few tricks to stretch those expenses further. So grab yourself a cup of coffee and a comfy chair, because we cover pretty much almost everything.

Editor’s Note: This article is intended to provide you with general tax information and should not be used as your only source of information. You should always seek the assistance of a professional familiar with your own personal circumstances for tax and financial advice.

Promotions/Marketing

This includes IMDB, Castingworkbook, demo CDs or DVDs, correct?

Yes, anything that you do to promote your business is considered a marketing expense. If you were to place an ad on the billboard, that would be an expense. Any business cards or anything you use to promote and advertise your business would qualify.

Portion of Rent

How exactly does writing off a portion of your rent or mortgage work?

It’s based on what percentage of the home space you use for a workspace. The percentage is calculated by dividing the area of your office space by the area of your entire home.  Generally speaking, it works well if you had an empty room set up as an office. Then you use that percentage to calculate the business portion of rent, mortgage interest, property taxes, insurance, utilities, strata fees & repairs and maintenance. One thing to keep in mind if you own your home, do not amortize it for business because when you sell, it will affect your tax free principal residence status.

Internet

Because the internet is generally for both business & personal use, you want to determine what percentage is actually used for business.

Phone

The business expense portion of your phone use is based on the amount that is used for business. If you’re using your personal line for long distance business calls, that’s also a business expense.

Office expenses

100% of paper, ink, pens, toner, envelopes, erasers, stamps, paper clips, staples…..basically everything you need for the office.  This would include renewable software subscriptions such as an anti-virus program.

Computer

What portion of your computer is considered an expense?

It’s amortized and the rates always change but right now, they’ve actually gone up. The current rate is 100% but you can only claim 50% of that in the first year and then claim the other 50% in the second year. This also goes for computer equipment such as scanners, printers, microphones, etc. Generally you would write off completely, anything that would be less than $200. Software is 100% over 2 years as well.

Travel expenses

Any airfare, accommodation, transportation expenses incurred during travel for business are business expenses but then again meals, even while traveling for work can only be claimed at 50%, so you want to keep track of those separately.

Meals

Speaking of meals for business. What about when attending classes or workshops? Are the meals purchased during those times an expense?

Meals when either traveling or attending conventions, conferences or similar events can be claimed.  So if you are attending an acting/film convention or conference, that would qualify.  Attending classes and workshops would not qualify.

Entertainment

No matter how many people you entertain you can only expense 50% of the bill. There are however, different rules if, for example you have a business and you’re taking out all your employees for a Christmas dinner, then that would be 100%.

Parking

It’s been my understanding that you cannot write off parking expenses incurred at parking meters because of a lack of receipt.

There is few expense categories that don’t provide a receipt and meters are one of them. If you don’t get a receipt, just document it by writing it down. Keep track of it along with your mileage. Parking for business is a 100% business expense.

Bus passes

Once again it’s a percentage of business use. So, you can write off individual transit receipts that are used for work or a percentage of your monthly pass. However, if you write off a percentage of those monthly passes for business use, that will affect your transit tax credit.

Auto Expenses

If I have this correct, you need to keep track of your km’s used for business, because this determines your percentage of business use & then, what percentage of auto expenses you are eligible to expense.

That’s correct. The business portion of gas, oil, repairs, maintenance, amortization, lease payments, insurance and interest on a loan to buy a car is determined by your keeping track of your mileage. If you don’t have your mileage recorded, the CRA will deny any automotive expenses. You must have your mileage log book.

What about when you purchase a vehicle. Is there a total of the purchase price I can write off?

When purchasing the vehicle you amortize it at 30% a year. But it’s a declining balance so you don’t write off a flat 30% a year. It’s a 30% declining balance so there’s no limit to how many years you can write this off. The cost of the vehicle is capped at $30,000.  (Read on to ‘Other Tax Questions’ to learn more about declining balances.)

Personal Development Courses

Training, Workshops, Classes, Stunt courses, Singing, Dancing – Anything you’re doing to enhance your business is considered an expense.

What about gym, yoga or Parks & Recreation memberships?

No. They do not count.

Beauty & Fashion

I’ve heard that some women write off their makeup.

If it was purchased and used specifically and exclusively for business and not for personal use, you could claim it as a business expense.

And what about clothing?

Again, if you bought clothing specifically for business use and not for personal use you can claim it.  It must be used exclusively for a specific audition or specific role.

Movies, Movie Rentals and Books

Anything that is considered research & development for your business is a 100% write off. Anything where you’re watching actors or reading up on actors or the industry is researching and developing your craft as an actor.

GST

When should the self-employed consider getting a GST number?

The Rule is once your sales or revenue gets to $30K a year, you have to get one. However there are many benefits to getting a number regardless of what your income is. Let’s say you buy a computer and pay $50 in tax. With a GST number, you’ll get that back.

Paying GST Instalments throughout the year – is that a choice made by the tax payer or by the CRA?

My advice is to file quarterly. You have a choice when you first sign up for GST if you want to pay annually, quarterly or monthly. File quarterly, because 2 things. Number 1, it forces you to do your bookkeeping every 3 months which is good incentive to avoid a huge box of receipts and at the end of the year. And the other thing too is that if you pay more GST than you receive, you get a refund from the government. And therefore if you are getting a refund you might as well get it sooner than later. As we know, some actors can go six months or longer without work so they have zero revenue, but they will have expenses.

Other Tax Questions

Are there any other receipts I should keep?

The only thing you really have to look at is ‘Is this involved with my business or not?’ If it’s iffy, keep the receipt and talk to your accountant because the receipt is your best source document. Sometimes people think the Visa statement is enough and sometimes it is good enough, sometimes not. Credit card slips or statements may not be good enough. Cancelled cheques may not be good enough. So the best thing you can do is keep the receipt.

How does a declining balance work?

This is how it works. Let’s say you buy some furniture for $1000. So for the first year of purchase you can write off 20% declining balance which is $200. However, because there is a ½ year rule, you can only claim 50%. So, instead of claiming $200 in the first year, you can only claim $100. Now what’s called your undepreciated capital cost or UCC, is what’s left over. Now you have $900 UCC to write off. So now the next year you write off 20% of that, which is $180. And now, for the year after that you get 20% of $720. You will continue to get 20% of your UCC until you there is no UCC left to deduct.

Should I prepare my taxes in tandem with my spouse or common-law partner?

It’s always better to have you & your spouse’s taxes done by the same person because you can allocate some expenses and tax credits to either individual, which may be in your benefit in lowering the total tax liability for both partners together.

If someone were to hire you to do their taxes, how would they best prepare to hand them over to you?

The best way to do it is to keep track of your own expenses is in a simple excel spreadsheet. Have different columns for different expense categories. If someone wants to bring me their receipts, it takes time to categorize and add the receipts which will increase the cost.

How long should we be holding onto our receipts?

You are required to hold onto your receipts for 7 years.

If a self-employed person has to move – are those expenses deductible?

Yes, as long as it is a distance of at least 40 kilometres.

Does it matter how much actual paid work you get to be able to write off expenses?

There has to be a reasonable expectation of profit but you don’t have to be making a profit.

Submitting your taxes.

The self-employed are not required to have their taxes in until June 15th. But if you end up owing you’re charged interest as of May 1st. If you do owe taxes you must pay the CRA by April 30th to avoid interest.

RRSP Contributions

Try to maximize your RRSP contribution. Not only is a RRSP a tax deduction, income generated inside your RRSP is sheltered from tax.  You can always cash in your RRSP anytime if you need the money in the future, but it will be taxed in the year that you cash it in, except if it is used for first time home buyers or for qualified education.

Tax Free Savings Account

Also, in 2009, the Tax Free Savings Account (TFSA) was introduced, whereby you can invest up to $5,000 per year into a TFSA and the income is completely tax free, including interest and capital gains. Generally the investments allowed in a TFSA are similar to the investments allowed in an RRSP.  You can carry forward any unused contribution from previous years.

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If you’re interested in handing over your tax preparation to Mark, email queries@backspin.biz or visit www.backspin.biz for more info. And remember to use your Backspin coupon from your Production Heads Coupon Book!

Written by Patricia Cullen with special thanks to Mark Yoshihara of Backspin for his time & expertise.

Editor’s Note: This article is intended to provide you with general tax information and should not be used as your only source of information. You should always seek the assistance of a professional familiar with your own personal circumstances for tax and financial advice.

[Photo Credit: alancleaver]

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