Happy Valentine's Day from The Bookkeeper's Notes

Welcome to the second issue of The Bookkeeper's Notes newsletter focusing on good bookkeeping practices.

If you are a regular site visitor, you know that Bookkeeping-Essentials.com is committed to educating and providing support to ... work from home business owners. I sincerely hope you find this newsletter useful and practical.

A Bookkeeper's Break - Geese on the ice in early November

My neighbour across the lake enjoys capturing wildlife where we live. In this picture, the geese are enjoying themselves in front of her home in early November. It almost looks like they are walking on water.

In this issue, I'll discuss getting your paperwork organized by going paperless, subcontractor payments, along with news from the CRA and IRS.

You will also find links to a handful of web pages that are password protected … my newsletter subscribers have exclusive access to these bookkeeping lists and procedures. You will need The Insider's Pass (a password) to access them, which you will find in the last section of the newsletter.

At the beginning of the new year, the site changed to a three column format. It went more smoothly than anticipated. I am happy with the results and hope you are too.

For work from home business owners doing their own books, I hope to introduce a new service in late April / early May … a general review of your ledger. This service will be for those who want assurance they are on the right track. I'll perform a high level review of your general ledger to see if there are any obvious problems.

As I mentioned last issue, I am hoping to give bookkeepers the opportunity to advertise their business on Bookkeeping Essentials in the new year. If you are a bookkeeper who would be interested in advertising with me, please drop me a line.

It is my sincere hope that the information I provide on Bookkeeping-Essentials.com, and in this newsletter, will help you learn good bookkeeping practices to manage your business finances easily and more efficiently.

To your success! ... and, of course, thank you for subscribing to this e-zine.

Until next time,

Laura (aka Lake) :0)
Lakeshore Bookkeeping Services

P.S. I would like to remind you there is a difference between information and advice. The general information provided in this e-zine or on my site should not be construed as advice. You should not act or rely on this information without engaging professional advice specific to your situation prior to using my site content for any reason whatsoever.

image of woman performing bookkeeping tasks on a computer courtesy of stock-xchng.com

In This Issue ...

  • Focus on Bookkeeping - Organizing Your Receipts
  • Focus on Payroll - Subcontractor Payments
  • Recent Canada Revenue Agency (CRA) News
  • Recent Internal Revenue Service (IRS) News
  • In the Forum - Share Your Expertise
  • The Insider's Pass - The Current Password is Here

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Focus On Bookkeeping - Organizing Your Receipts

In the last newsletter, I talked about how important it is to have both proof of purchase and proof of payment as a way to audit proof your records.

Now you know what to keep … but have you developed a system to handle your receipts to ensure no tax deductions are lost?

This year, I'm trying to go near paperless. I have recently purchased a Fijitsu Scansnap to help me with the task.

I still haven't figured it all out yet, but this scanner is fast. No sitting down to write a novel while the documents scan. Put the papers in the feeder, press the scan button, and file it.

As I haven't chosen a document manager yet, I created my own template to file the source documents. I will share that with you when I release my e-book on year-end preparation later this year.

The scanner is allowing me to create an electronic year-end binder that I can use to support my T2125 tax schedule … making audit proofing my business records easier than before.

I'm looking forward to reducing the volumes of paper in my home office and storage … in addition to simplifying the creation of my audit trail.

Read more about choosing a filing system that matches your management style here ...

At the bottom of the article, make sure you take a look in the forum section … you'll find information about a free course on going paperless offered by DocumentSnap.com.

Would you like to test your bookkeeping skills ... or prescreen a bookkeeper before you hire them? You can purchase this 300 question test including the answer key for $15 USD here ...

Focus on Payroll - Subcontractor Payments

The t-slip deadline is approaching. Around this time of year, questions about who requires a t-slip … and which t-slip move to the forefront. A question in this month's forum brought the issue of subcontractor payments to light.


Construction subcontractor payments are reported on form T5018 Statement of Contract Payments. But what about subcontractor payments not connected with the construction industry?

T4A regulations with regards to non-construction subcontractors are being enforced during payroll audits. The CRA website says:

"Fees or other amounts for service - Do not deduct Canada Pension Plan contributions or Employment Insurance premiums. These payments are not pensionable or insurable. Report the income in Box 048 of the T4A slip."

About Box 048 - Fees for services

"Enter any fees or other amounts paid for services. Do not include the GST/HST paid to the recipient for these services."

The reporting period is calendar not fiscal year.

Find out where you can get a great form to download that captures the information you require from your subcontractors by clicking here …

On your next visit to the payroll section of the CRA website, make sure you check out calculating deductions> special payments.

There is a drop down menu that allows you to select from a variety of special payments. Based on your selection, this payroll tool will help you determine whether or not you should deduct CPP, EI, and/or income tax. Take the time to ... get familiar with this easy to use payroll tool and get it right the first time.

T4A slips are due February 28. T5018 reporting is due 6 months after yearend.

You may email the slips if you have received consent in writing or electronic format. Retain any undeliverable slips in the subcontractor's file.

United States

Small business owners are required to report income made by non-employees. The reporting period is calendar not fiscal year. You must complete IRS Form 1099-MISC (box 7) annually if:

1. You paid $600 or more in payments to a subcontractor that is a sole proprietor or self-employed person;

2. The payment for service (not merchandise) is related to your business or trade … not your home.

You do NOT need a Form 1099-MISC for employees (they receive a W-2) or corporations (this is scheduled to change in 2012 if the legislation is not overturned).

A good way to ensure you have the information you need come tax time is to have every independent contractor complete a W-9 Request for Taxpayer Identification Number and Certification.

Two excellent and easy to read documents on the IRS website are:

- Subcontractors found at www.irs.gov/pub/irs-regs/subcontractorstext.prn.pdf; and

- Subcontractors Frequently Asked Questions at www.irs.gov/pub/irs-regs/subcontractorsfaq%26a.prn.pdf

Your 2010 forms should have been presented to the contractors by January 31, 2011. If you missed the deadline, let your contractor know you are sending it shortly. The contractor receives Copy B. The IRS receives Form 1096 Annual Summary and Transmittal of U.S. Information Returns AND Copy A by February 28 ... March 31 if filed electronically.

To send the 1099s by email requires the explicit permission of the contractor.

Humour by Advice ... with Dr. Julia Chicken

Recent CRA News

The CRA has a Letter Campaign Initiative asking selected taxpayers to self assess certain deductions they may have claimed on their tax returns. The goal of the campaign is to educate taxpayers and promote compliance with the the Income Tax Act.
 Sole proprietors will likely be targeted.

If you receive a letter, it will include an article on Business Activities ... explaining the eligibility of some of the expenses CRA would look at if and/or when they audit you.

It reviews:

- record keeping requirements,

- the start date of your business,

- capital, current and personal expenses,

- meals and entertainment,

- office expenses,

- salary and wages,

- subcontractor payments documentation and determination,

- motor vehicle expenses including the simplified logbook,

- business-use-of-home expenses, and

- other expenses.

Are you a corporation with employees? If you need to calculate automobile benefits (standby charge and operating expense benefit) , the CRA worksheet RC18 Calculating Automobile Benefits helps you with the calculation. Also make sure you check out CRA's online calculator … Read more here ...

Tax preparers can now submit the form T1013 Authorizing or Cancelling a Representative online starting January 24. Beginning today, if you sign the form, your tax preparer will have a four day delay to accessing your client information. Tax preparers use this service to verify your information on file with CRA. It helps them to prepare an accurate tax return, reducing the likelihood of you being reassessed.

Oops, I got it wrong! Here's a correction from the last newsletter. I stated that if you (or a friend, neighbour, client) are between the ages of 60-64, are receiving a CPP pension AND still working, under new rules effective in 2011, CPP contributions will be required. However, this change will not be in effect until 2012. Read more on Service Canada's website ...

Prescribed interest rates for the first quarter of 2011 were released and have held steady. Find the interest rate tables here ...

Recent IRS News

Earlier I mentioned how I was organizing my receipts. The IRS has an audio file of their national phone forum on recordkeeping. You can hear the presentation at www.irsvideos.gov/RecordkeepingPhoneForum.

Find a summary of all the 2011 tax changes pertaining to small business by clicking here to access the IRS reference page ...

IRS Publication 17 is a booklet that takes you through your federal income tax return step by step explaining tax law to help you understand the amount of taxes you must pay. It contains tips on what income you need to report and how to report it.

Electronic signatures are required when filing your tax return electronically with the IRS, in the form of a five digit PIN and online verification questions.

The IRS website (IRS.gov) has a withholding calculator that employees can use to review their withholding every year. With all the changes in 2011, it may be worthwhile to have your employees check it out. The employee should provide you (their employer) with a new W-4 form if necessary.

IRS interest rates decreased by 1% for the first quarter of 2011. Find the interest rate tables here ...

A reminder ... IRS "deposits made at an authorized financial institution will no longer be accepted after December 31, 2010. Instead, deposits can be made using EFTPS online with a computer or by telephone. For making deposits by telephone call 1-800-555-4477 (business), 1-800-316-6541 (individual), or TDD 1-800-733-4829." You'll find some more information here ... right after the payroll due date tables.

Ask a Private Bookkeeping Question

Purchase your private bookkeeping question here ...

In the Forum - Questions That Require a Second Opinion

Visitors like you have the option of sharing a great resource they've found, their bookkeeping experiences, or asking a question in one of the
Bookkeeping Forums.

Consider sharing your expertise in these forums like Greg Lam did with his article on Banking Assists Business Record Keeping.

Recent questions in the forum covered living out allowances, HST charged with no business number, and recording the purchase of that new computer for tax purposes.

If you've used the forum and were happy with the help you received, please don't be afraid to tip me by making a donation! As more people ask questions, it takes more of my time. Your tip would not only put a great big smile on my face, … it would let me know that this service is useful and worth continuing.

The Insider's Pass

The Insider's Pass gives you access to the pages in Bookkeeping Essentials that are available only to newsletter subscribers ... my way of saying thank you.

Here's how it works. The pages listed below will only be partially viewed by all visitors. To view the entire article, you will need your Insider's Pass for access. The password will change with each newsletter … every two months. So if you ever forget, you will always find the most current password in your current issue of The Bookkeeper's Notes.

The current password is exercise ... it's a reminder to step away from your computer and move! Go for a walk to get some fresh air and sun. Think of it like recess when you were a kid. ;0) It is case sensitive.

Here is a list of the pages which are password protected so that only my very important subscribers ... that would be YOU :0) ... have access.

Internal Controls
No password page
Password protected page

Bookkeeping Checklists
No password page
Password protected page

Common Journal Entries - Journal Entry Examples
No password page
Password protected page

Month End Procedures
No password page
Password protected page

Adjusting Entries
No password page
Password protected page

Monthly Financial Review or How to Supervise Your Bookkeeper
No password page
Password protected page

This wraps up this issue of The Bookkeeper's Notes newsletter.

Comments? Ideas? Feedback? I'd love to hear from you. Just reply to this e-zine and tell me what you think!

If you like this e-zine, feel free to forward it to a friend. You'd be doing me a huge, huge favour. If a friend did forward this to you and you like what you have read, please subscribe by visiting my site.

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How to Use This Exam:

(1) As part of your interview process when hiring a bookkeeper.

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(4) To prepare for a job interview.

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From the Mail Bag
Visitor Comments

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CPB Bookkeeping, Inc.
"The Organizer"
Lake Worth, FL

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Taking the worry away
Belledune, New Brunswick

BTW, did you say Bookkeeping? Cuz I fell asleep... just kidding!

Dr. Julia

(I love her humour!)

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Alwyn Enterprises
Scarborough , Ontario

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Reliable Recordkeeping
Toronto, Ontario

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Loralee, Red2Black.ca
QuickBooks "one
on one" coaching
Edmonton, Alberta

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I'll Sweat The Small Stuff For You - JaxTaxPro.com
Jacksonville, Florida