Home Based Business Reporting
The Times They Are A Changing
I note with interest that individuals (proprietors) are being advised not to include the business portion of utilities etc (shared personal / business) expenses within their bookkeeping system.
I have always included these in my clients books as they are part of the overall business picture and are missed on financial reporting if not included. It also makes entry on the T1 much easier and also normally reminds the small business owner to keep a copy of the receipt/invoice within their company records, as well as their personal records if they keep them.
It is also interesting about telephone reference expenses. I have several clients who continue to have a land line only for the purpose of their business, mainly debit machine. Family members all have personal cells and if an audit occurred then the bill is kept within the business files with any "personal" use removed/marked out.
The car use is another problem for home base business and keeping logs is a pain. I do know that if you do not have the business insurance and are audited they will not be to friendly in accepting a business expense.
But all in all I include all expenses, including out of pocket, in the 'company' books because without this you do not have a true picture of the business.
Interesting ... the times they are a changing!!
I'm curious if you are including the home office expenses at a rate of 100% or at the prorated value that will appear on the T2125? Do you record them as part of the G&A expenses or below the line under other expenses? It would be incorrect to record the home utilities, etc at 100%.
As part of the yearend adjusting entries, I will record
the home office expenses below the line at 100% ... and then using a sub account called "Personal Use Adjustment" to back out personal use ... so that the net home office amount matches what is claimed on the T2125.
Your argument for including the land line as a business expense less personal use seems reasonable given all family members have cell phones. Have any of your clients using this method been audited? Did the auditor accept the claim / deduction without adjustment?
I do agree that keeping an auto log is a pain ... put it does put money in your pocket come tax time ... so it is worth doing. I agree with the auditor when they disallow vehicle expenses for business if the vehicle does not carry business / commercial insurance. You can't have it both ways. In addition, it's very risky to not have business coverage because ... in BC at least ... if you are in an accident
while driving your vehicle for business use ... without the business insurance coverage ... they will deny your claim. You would have to pay all expenses out of pocket.
It is appropriate to include all business related expenses in the books ... including out-of-pocket expenses ... but out-of-pocket expenses must be recorded a bit differently
than expenses paid for from the business chequing account, business credit card or third party debt / investors.P.S. I would like to remind you there is a difference between information and advice. The general information provided in this post 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 this site content for any reason whatsoever.