If you do tax prep for business clients, they may give you a jumbled pile of receipts or unsorted expense records at tax time. To make tax prep easier for everyone involved, you may want to give your clients a few basic organizational tips. In particular, you may want to consider tools to help them keep their current and capital expenses separate.
First, make sure your clients know the basic difference between current and capital expenses. Basically, current expenses are for items your clients use right away. For example, office supplies such as printer paper and pens fall into this category but so do rent and utility bills. Capital expenses are for capital assets or items your clients are going to use over a long period of time. This includes everything from buildings to vehicles to machinery.
After explaining the difference between these two types of expenses to your clients, find a way to help them organize their records. You may want to recommend accounting software that differentiates between current and capital expenses. If they dwell in the world of paper receipts, you may want to give them a file box full of individually labeled folders. You can stick with one folder for capital expenses and another for current expenses, or you can break down the categories even further by creating folders for different capital cost allowance classes. Those are the categories the Canada Revenue Agency uses to depreciate capital expenses.
If you have a client who doesn’t have a lot of expenses, you may want to set up a couple of spreadsheets for him. Earmark one spreadsheet for current expenses and the other for capital expenses, and advise your client to record expenses on those sheets. Don’t forget to remind your clients they still need to save their receipts.
Helping your clients organize their records can make your job a lot easier, especially if you focus on tax prep. Give your clients a little information on how the CRA classifies different expenses, and then help them explore various tools to stay on top of their recordkeeping.