I had the pleasure to be interviewed by Workshopmag about seven helpful tips related to Taxes in Canada.
Can you believe that talking taxes can be fun? It certainly was on March 10, when Workshop hosted a live Q&A with bookkeeper Jayne Dykstra of Zetique and Mint Shape Money. (You may recognize her name from the Q&A we published about tax writeoffs.) During the lively Zoom session, we chatted about taxes, expenses and bookkeeping — and even fantasized about burning receipts.
One of the most popular topics of conversation was expenses, which we’ve covered in more detail in another article (which includes a handy checklist to help you capture all those write-offs). But that’s not all we talked about. Here, we share some of Dykstra’s best tips from the event. Plus, scroll to the end for a video recording, available to paid Workshop members.
1. The best bookkeeping system is the one you’ll use
Dykstra’s first piece of advice: “Find something that works for you, whatever that looks like.” If you geek out on entering data into spreadsheets or are tech savvy and love a good cloud-based software, go that route. “And if you’re scared out of your mind about your numbers, afraid that the Canada Revenue Agency is going to come knocking on your door in the middle of the night, then hire a bookkeeper or get an accountant that you trust, who’s going to take care of you,” said Dykstra.
2. Keep your bookkeeping as up-to-date as you can
You have to file your taxes on an annual basis, but doing your books once a year doesn’t help you run your business. “There’s a lot of things you can learn from your numbers,” said Dykstra. Having current information about what products sell the most and whether you made a profit on that course you offered can help you determine where to focus your energy in your business. As Dykstra said during the live Q&A, “Numbers can tell you that kind of stuff really easily.” But waiting until April to learn those numbers won’t help you in June of the year before. Dykstra says doing your books weekly is overkill, twice a month is good and every other month should be the bare minimum. “Get all your stuff in order, make sure you know where you’re at.”
3. Separate your business and personal accounts
“The most important thing: set up a separate bank account for your business,” said Dykstra. It doesn’t have to be a “business” account if you’re not incorporated (no need to pay the extra fees); as a sole proprietor, a second personal bank account is sufficient. The goal is to keep your personal and your business banking separate to make your bookkeeping easier. Have all your payments — from Stripe, PayPal, Etsy — flowing into that account. Then, after paying your business bills, you can make transfers to your personal account as needed. She also recommends getting a second credit card with which to make all your business-related purchases. (Again, any card is fine for most of us; the CRA does not require sole proprietors to have a business account.)
“Just put everything in one bank account and everything on one credit card,” said Dykstra. “Don’t use cash.” When all your income and expenses go through these two accounts, everything is in one place at bookkeeping time. “At year end, you have a trail of every single penny that you’ve used for your business.”
4. If spreadsheets work for you, don’t waste your money on bookkeeping software
When you’re a business owner, it’s hard not to be romanced by software that claims it will solve all your problems. But as Dykstra points out, any bookkeeping program that promises to do it all for you is lying. “It gives you a false sense of security and your numbers,” answered Dykstra, when one Workshop member asked if paying for a program like Quickbooks or Xero was worth the money.
Dykstra has been called in to rescue plenty of small businesses only to find they haven’t been processing the data that’s feeding from their banks into their bookkeeping systems. “We don’t like going through our credit card, making sure that our expenses have the HST properly accounted for, making sure that it’s in the correct category, making sure that those are reconciled,” she says. “Because that’s not fun. It’s boring.” But without this manual work — whether done by you or someone you hire — your numbers will just be a big jumble. “Using it properly is the key.”
5. If you can’t keep up with your bookkeeping, hire someone
As small business owners, we have a lot on our plates, and usually bookkeeping is the thing that gets pushed to the bottom of our to-do lists. And often, that means it just doesn’t get done. “When you create your to-do list, whatever is at the bottom is the first thing that you want to get somebody else to do for you,” Dykstra told event attendees. For her, it’s social media. For you, it might be bookkeeping.
6. About that HST number…
Dykstra said one of the most common mistakes she sees small business owners make is not registering for HST in time. As soon as you hit the magic number of $30,000 in business income — not in a calendar year, but over four consecutive quarters — you need to register and start collecting HST. If you don’t, you may find yourself owing money to the CRA for the HST you should have been collecting once you reached that level of income. (Read our beginner’s guide to HST, GST and PST to get the full lowdown.)
Dykstra also pointed out that there are two circumstances in which she thinks you should register for an HST number before you need one. “Number one is, if you want to appear bigger than you are.” If you want people to think you’re already making six figures, having an HST number “proves” you’re making at least $30k. (Shh, we won’t tell anyone if you aren’t yet.)
“Number two is, if you have a lot of expenses and you buy them in Canada, then you may actually get a refund,” said Dykstra. It works roughly like this: We collect HST on behalf of the government. We also pay HST on many of our purchases. Come tax time, we subtract the HST we paid from the HST we collected and send the government the difference. (The math can be a little more involved than this, but that’s essentially the gist of it.) If you paid more HST than you collected — say, you bought expensive new equipment or spent a lot on startup costs setting up a retail store — you could get a refund. “I get a lot of people at this point who go, “Oh, man, I should have [registered for HST] a year ago,” said Dykstra.
7. Round up your craft-show prices
Inspired by the discussion of HST numbers, Workshop co-founder Corinna vanGerwen asked about how to handle the tax at craft shows and when making cash sales. Many makers like to charge round numbers in these situations so that it’s easier to total the cost of a multi-piece purchase or calculate any change owed: Think charging $20 including tax (one nice crisp green bill) versus $20 plus tax (a.k.a. doing math and hunting for loose change). Dykstra’s advice: “Up your fee a bit, because you want to make sure that you’re charging for HST. So don’t take $11.30 and make it $10, just because $10 is easy. Make it $12 because $12 is also easy.” Before the show, calculate each item’s price after adding tax, then round up that number to get your show price. At the end of your show, tally all your cash sales and subtract the HST, recording it in your bookkeeping. “Make sure you’re accounting for the HST,” Dykstra pointed out. “Don’t ignore it just because it’s cash.”