Financial Management Heather Schaus is the accounting manager at BDO’s Mount Forest office
Five ways to prepare for income tax Showing up at your accountant with only a shoebox crammed full of receipts is costly in professional time and handcuffs your ability to make better financial decisions throughout the year. Although most farms today have bookkeeping systems well beyond the shoebox, organizing some key information ahead can save time and headaches chasing down information later. Whether you use a ledger, Excel spreadsheets or computerized bookkeeping programs, such as QuickBooks, Sage 50/Simply Accounting or AgExpert, the same
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information and paperwork is needed. So here are five simple ways to get ready for this coming tax season. 1. Reconcile. The first thing you need to do is make sure your bank account is reconciled in your bookkeeping. Reconciling with your bank is making sure you have recorded all of the deposits, cheques, and debit payments you have done each month and checking they have cleared or show up on the bank statement for that month. It also ensures any activities, loan interest and principal payments, bank charges and loan advances, which are only seen on bank statements, are recorded in your bookkeeping. By reconciling your bank account in your bookkeeping, your accountant knows all income and expenses are recorded. Plus it feels amazingly satisfying to reconcile. 2. Inventory List. Your accountant will need a list of your inventory as of your year-end so write it down. If you are already doing this for your loaning institution, you can simply share a
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copy of this inventory list with your accountant as well, or vice versa. Sharing this information is important because inventory on income tax returns can be used as an “add back”, if you are in a loss position. In fact, some of the income tax rules require adding back your inventory, if you are in a loss position. Make sure you talk with your accountant as to your personal tax situation and how inventory “add back” will affect your farm tax return. 3. Bought/Sold Asset list. A straightforward list of purchase and sales/disposals of equipment, including office equipment, machinery (tractors, combines, etc.), computer equipment, buildings and building additions during the year will help your accountant tremendously and a good place to start conversations about longer-term planning. If you have had any major purchases during the year, attach a copy of the purchase invoice, including any trade-ins invoices. Sharing what year you purchased the assets sold/disposed of in the current year will help the accountant more easily find the original cost of the asset from that year. Different types of assets have different Capital Cost Allowance rates used as expenses each year, this Bought and Sold asset list details will help your accountant know how to CCA categorize the assets bought and sold in the year. Make sure to ask your accountant about the rates and expenses that can be deducted on your farm income and expenses for future capital planning. 4. Island of Misfits. The items that don’t seem to fit anywhere need some further explanation. These are the items often recorded in your bookkeeping, under “Other miscellaneous income” and “Other/miscellaneous expenses” or some computer programs call this “Ask your accountant”. With any of these accounts write a note, explaining what was purchased or earned during the year. When your accountant is looking at these accounts, they know what was put there and why, and some expenses and income may need to be moved to other accounts or taxed differently.
