Chantale Wild Bookkeeping Services

Do you understand what a Tax Write off means?
I hear it all the time. Its a write off! Do you really understand what a write off is and how it benefits your business? Do you understand how it can also hurt your business, especially when your self employed. Yes I said hurt your business. So first lets cover what a write off is. A write off is an asset or an expense that can lower your taxable income so you can pay less in taxes. That sounds great doesn't it? Everyone wants to... pay less in taxes. So you go and spend $5000 on new office equipment, or maybe tools (assets) and then maybe you spend another $10,000.00 in office supplies, fuel, and meals(expenses). You have now lowered your taxable income by $15,000 dollars. So if your business income was originally $65,000.00 you have now been able to reduce your taxable income to $40,000.00. This changes your tax bracket by 5.5%. GREAT! Just hold on a minute though. You just reduced your income by $15,000.00. So what does that mean? It means you reduced the value of your business.
Over the years, especially living in Alberta, which feels like the capital of contractors, seems everyone is self employed. Everyone wants to pay less in taxes and take advantage of all the "write offs" possible. If your planning on buying a home, a car or wanting to take out a Line of Credit for your business; what is the bank going to look at? What is the value of your business? The bank is not just going to look at the money you made (revenue), they are going to look at the bottom line (net income). That means they look at what you made, subtract what you spent, and that last figure is what the business is worth. That number could make a very large difference for what a bank is willing to do for you.
I have heard the frustrations of self employed friends and family for years. "The bank says I didn't make enough money!" As a business owner, understand what you can and cannot "write off". As long as you operate as a responsible business owner, and define the difference between a personal expense and a company expense; that number on the bottom line is true to form. You have to spend money to make money. That's ok, just don't take advantage cause it will only hurt you.
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