"The hardest thing in the world to understand is the income tax."
Author: Brad Howland
First Posted: October, 2000
Here is a list of the kinds of records Canada Revenue Agency requires to substantiate your return. If you do get audited, you will probably have to pay some money. Having these records will go a long way towards minimizing the damage and keeping you out of trouble!
- The number one rule in most tax books is to keep a separate bank account for your business. Reconcile your cash receipts and disbursements with the bank statement. Have all checks made out to your business account, and pay all expenses from that account.
- Now...let's have a reality-check. A separate account is a great "audit-proofer," but is it practical for all musicians? After all, your musical life is integrated with your personal life. Most of the assets you use in your business are also used for personal reasons (e.g. your car). For some people, an extra bank account is a needless complication. It should be sufficient for them to organize according to the following points. Of course, if you have employees, and must regularly calculate payroll, remit taxes, and do similar chores, a separate bank account is essential.
- Keep all your tax-deductible receipts in a file, organized in alphabetical order.
- Have a separate file containing receipts for items such as instruments or computers, on which you are claiming depreciation.
- If you are deducting expenses for business meals and entertainment, keep a record of who you dined with and what was the item of business you discussed (jot it down on the receipt).
- If you are deducting expenses for an office in the home, make sure that it is your main place of employment or business, or you use the work place only for business purposes and you use it on a regular and ongoing basis for meeting your clients and customers (e.g. students or musicians).
- If you are deducting expenses for business use of your automobile, keep records of your business mileage, showing odometer readings and describing the nature of the trip.
- Keep records for at least six years after you file your return.
This information is provided without warranty of any kind. All readers wishing to take advantage of the information offered here should consult a qualified income tax preparer. In no event will Brad Howland, Howland Tax Services, or this website be liable for any damages, including lost profits, arising out of the information offered on this website.