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Jay Dharma runs two businesses in Toronto, including a wellness centre that offers massage therapy and sensory deprivation tanks.JENNIFER ROBERTS/The Globe and Mail

When he's not manning the reception desk, washing towels and mopping floors at Float Stress Relief and Wellness Centre, a Toronto-based facility that offers massage therapy and sensory deprivation tanks, Jay Dharma is busy tending to Commission Entertainment Corp., his concert and event promotion company.

But as a sole proprietor running two companies, he needs to pay extra attention to recording and detailing his business expenses, both for his own peace of mind and to ensure smooth sailing come tax time (the deadline is June 15).

"I take about 30 minutes every week just to do the financials," he says. "Where things are being spent, where things are going, what can I reduce and what's the most cost-effective."

Staying on top of where your money is going is paramount to evaluating how your business is doing and being organized for tax season.

But how best to go about that? Here is some advice from the experts.

Categorize expenses

Mr. Dharma uses an Excel spreadsheet to track his expenses, which are filed by category under products (such as laundry detergent), labour (which consists of his registered massage therapist), and vendors.

Filing by category is an approach that your bookkeeper will thank you for.

"It's actually faster to sort that way as opposed to trying to find the date on each receipt," says Teya Mali, a certified professional bookkeeper and owner of Homeroom Small Business Solutions in Vancouver.

"The accounting software is going to sort it by dates anyway, so we find it faster to work with if it's all meals, or gas, or advertising."

Keep it together

It can be tough to stay on top of business expenses when using a combination of cash, credit and debit cards. A simple envelope or two can help.

Keeping envelopes or file folders from the dollar store in the house and car is useful for collecting receipts, says Naveen Ahuja, a chartered professional accountant and partner at Swift Accounting and Business Solutions Ltd. in Calgary. When the credit and debit card statements come in, compare them to the receipts to make sure everything is as it should be.

It's also important to keep both the receipt and the credit card slip, as the former shows what was bought, while the latter shows what was spent.

"That helps when, for example, you go to Canadian Tire," he says. "[Canada Revenue Agency] wants to know if you bought some screws and hammers if you're in the construction industry, or if you bought a hot tub for yourself."

Separate is best

It seems like a no-brainer, but it's better to have separate bank accounts and credit cards for personal and business use. This arrangement could alleviate problems at tax time.

As Mr. Ahuja says, incurring too many transactions on a personal credit or debit card can cause problems.

You could be entertaining a client, he says, "but if the CRA has a doubt that you could be using a personal card on a non-business hour they might not allow that expense and deny the deduction."


Expenses claimed for a home office can cause trouble, says Bruce Ball, CPA and national tax partner for BDO Canada LLP. For expenses related to heating and electricity, for example, take the cost for the whole house and prorate it based on the amount of space being used for the home office, he says.

When it comes to tracking entertainment expenses, Mr. Ball says it's always worthwhile to make note of who was being entertained.

"It's a good idea to write on the back of the receipt who was there, why they were there," he says. "You might have to explain later to the CRA."

Store away safely

Mr. Ahuja recommends keeping expense records for at least three years, but if you have the storage space, it may be worth storing them for seven. The CRA can go back further than the usual three years, but it needs special permission. "Past seven they can't even touch it at all, by law," he says.

He cautions, however, that the time period begins when the taxes are filed, not necessarily at the end of a particular tax year.

Note your mileage

If a vehicle is part of daily business life, owners should keep a mileage logbook. "If you do get audited, [the CRA] will ask for a mileage log and they will deny all your auto expenses without one," Ms. Mali says.

Keeping a notebook of trips is one option, but today there are apps that can do the job more easily.

Whatever methods are used to track expenses, though, consistency is king. "Every day when I close the till, I make sure the books balance," says Mr. Dharma. "Then I'll do it on a weekly basis, then a monthly basis, then I do it quarterly, then I do it semi-annually, and then I would do it annually.

"So this way, when it comes to tax time, everything is pretty straightforward."

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