Canadian Small Business Women

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Business Use of Home Expenses

Note: This information differs slightly for employees who are required/allowed to work from home.

Many entrepreneurs love the idea of starting a business from home because now they get to claim the home expenses – or rather a portion of them – as a business expense! BUT entrepreneurs beware there are conditions to be met!

You need to meet ONE of the following conditions:

  1. It needs to be you principal place of business OR
  2. You use the space only to earn business income AND you use it regularly and on an ongoing basis to meet your customers, clients or patients.

So what does that mean?

If you always meet clients at a coffee shop, restaurants or their place of business, and never in your home, it can be a challenge to justify why you need to claim a home office.  Furthermore, if you are also expensing a secondary office space (meeting rooms, rented office spaces) justifying the need for a home office becomes even harder. Needing a place to keep your computer and files often is not strong enough.  However taking calls, doing client work, and using that room for other functions relating to contracting business can be a better justification. Note there is also an implied expectation of a separate room or dedicated work area; using the kitchen table does not cut it.

Once you have determined that your home office you can claim a percent of the following expenses:

  • Heat
  • Electricity
  • Insurance
  • Maintenance
  • Mortgage INTEREST
  • Property taxes
  • Other expenses (such as water)

It is important to also mention that the amount you deduct cannot be more than your net income; so the expenses relating to the home office cannot create a business loss. So we recommend calculating your net income (Revenue less expenses) for everything else first, then seeing if home expenses make the cut. These expenses can be carried forward with certain conditions.

When you sell your house, there will be what’s called a recapture if you have deducted depreciation on the value of the house so our recommendations is not to do any depreciation relating to your house!

 

 

 

“Behind Every Great Business is a Great Accountant”

For more information on how to keep your business tax efficient, or to get a consultation on whether you are making all the right tax choices for your business, contact Dharna CPA. www.dharnacpa.ca. Info@dharnacpa.ca

Know your Numbers!

Uchechi

Most people that know me well know that I love looking at numbers. I love creating budgets and expense tracking sheets to manage both my personal and business expenses. I love to look at how my business makes money and look at different opportunities to bring in additional sources of revenues into my business. However, I find most business owners do not do this.

How does your business make money? Yes, you may have a product or service that you sell, but there are so many different areas to consider in terms of how you make money. Who are your strongest consumers, and which outlets do you make the most money in? How profitable is your business? You’ve got to understand the financial health of your business.

It’s unfortunate, but finances tend to be where most small business owners tend to fall short. Entrepreneurs are highly creative, and there’s so much we have on the go, and sometimes the numbers part is what we tend to look at last. However, I’m a firm believer that you really need to look at your numbers and understand your numbers on a consistent basis. Understanding your finances allows you to make the right business decisions, know how healthy your business is, and will help you build a business with longevity.

Take time to sit down and add all the numbers. Do not be afraid of the numbers. When you’re afraid of the number, and ignore them, that’s when you get yourself into trouble. Set an annual (yearly) target and break it down into monthly and weekly targets. Depending on how big your business is, you may want to start with monthly, but I really love breaking it down into weekly.

When you do your budget, don’t forget to take account your own basic needs. Some business owners tend to budget solely on their business expenses. That’s great if you have a full-time job and you’re bridging your business. However, if you want your business to sustain you and you want to run it full-time, you really need to take your personal expenses into account.

You also need to also understand your break-even point. Your break-even point is the point where revenue actually starts to cover your expenses. The more money you make on top of that will go into your profitability.

Start tracking the return on all those activities you’re doing. So, if it’s Facebook marketing, your email newsletter– how are those converting? You need to know how much money you’re getting in return for all the money you’re spending to bring in sales.

Taxes are another great thing to consider. A lot of small business owners miss this completely, and I’ve been guilty of this too in the past. What tends to happen is we forget to set money aside for taxes. But once you do your taxes, especially when you start making more profit, you’ll have to pay taxes, and depending on how much profit you made, you may get a big tax bill. If you have not been setting any money aside for it, it will leave you scrambling to get money to pay for the taxes. Furthermore, it will cause you so much stress and energy. It will also take the focus from running your business to worrying about finances. Always set some money aside, especially if you’re making profit to pay for your taxes.

There’s so much I can write about this, and feel it’s so important to the success of your business that I dedicated a whole module in my 4-Week Business Success Bootcamp online program to ‘Know your Numbers’.

I like to say, ‘your numbers tells you a story’.  That story will show you how healthy your business is and areas you need to improve to make it more successful!

 

Uchechi Ezurike-Bosse is a Business & Lifestyle Strategist, Speaker and Writer, but most importantly, a proud Mother and Wife. Uchechi is Founder of My Empowered Living (http://www.myempoweredliving.com) a website aimed at helping women shift their mindset and live their passion! Whether it’s starting and building their dream business, or helping them create a lifestyle they crave, Uchechi is the modern woman’s secret to success! Visit Uchechi at www.myempoweredliving.com to get her FREE online video training series The 4 Keys to your Business Success! This free 4-day business training reveals her 4 key strategies needed to build a profitable and successful business, and how to put them to work in your business!

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