A BUSINESS OWNER’S GUIDE TO FINANCIAL STATEMENTS

A good way to know the financial status of any company is through their financial statement. A company’s financial statement provides financial information to investors and creditors in order to assess their overall financial status. Moreover, the company’s management uses it in order to determine whether they are on track of the company’s goal. Most entrepreneurs may leave these matters to a hired accounting firm or to an accountant. But there are essential things about financial statements that all owners must know.

 

THE THREE FINANCIAL STATEMENTS. 

 

1. Balance Sheet 

A balance sheet is a list of assets, liabilities, and owner’s equity over a specific period of time (e.g. month, quarter, or year).

 

Assets are economic resources. Simply put, they are things that a company owns that have value and could be sold. They could be tangible objects such as vehicles, equipment, accounts receivable, and inventory. Likewise, intangible objects could also serve as assets such as patents and trademarks.

 

Liabilities, on the other hand, are amounts your business owes to others. Examples of which are loans, 

Cross Border Tax Specialist

accounts payable, wages, and mortgages.

 

Owner’s equity is the owner’s capital or net worth. It is the amount left when the owner sold his assets and paid off his liabilities.

 

2. Income statement
The income statement shows your revenue over a specific period of time and the total cost that was spent in order to yield that revenue. It is a summary of what the business has gained and lost over the period.

Cross Border Tax Services

 3. Cash flow statement

The cash flow statement, often referred to as the statement of cash flows, reports the cash generated and used during a certain time. This statement reports the following:

Canada US Tax Accountant

Cash flow from operating activities- cash from the company’s core activities (e.g. manufacturing, marketing, selling)

 

Cash flow from investing activities- cash from investments (e.g. investments on financial markets or operations)

 

Cash flow from financing activities- cash from transactions between creditors and/or investors used to fund the company.

 

Supplemental information- reports the exchange of significant items that did not involve cash and reports the amount of income taxes paid as well as interest paid.

Read more »

Harmonization of U.S. Taxes in Canada

U.S. Citizens and green card holders living in Canada are still affected by existing taxation laws in the U.S. The law provides that as long as a person is a citizen of the U.S., he or she has the duty to pay taxes to the U.S. regardless of whether they are in the U.S. or not. 

 

 

In order to prevent and protect the citizens from double taxation or of being taxed by both Canada and the U.S., both countries have an agreement which is summarized in Article XXIV of the Canada-U.S. Income Tax Convention of 1980. Depending on a particular situation, only either one of the countries can impose tax. IRS, however, still require citizens, exempt or not, to file tax returns declaring their income from Canada and from other sources.

Currently, the existing U.S. Taxes in Canada are independent of a person or a business geographical location and is uniform all throughout Canada. The nature of how U.S. collects taxes is the main reason of harmonization of U.S. taxes not only in Canada but in other countries, as well.

Some citizens fail to comply with the requirements set forth by the IRS. Recently, legislation against non-compliance has been significantly strengthened to give more teeth to the existing laws and to impose tighter and stricter penalties. Moreover, legislation has increased the power of IRS in terms of gathering financial information of U.S. citizens. New laws allow a more efficient partnership and exchange of information between the two countries in order to assist in the collection of taxes.

Currently, U.S. taxes are harmonized across Canada. The existing laws that take effect are based on the above mentioned laws and rules.

For residents, the rules provide that they are exempt from U.S. taxes. They are not exempt from Canadian tax, however, and are required to pay taxes to Canada. While both countries have similar economic systems, Canada and the U.S. compute taxes differently. They impose different income brackets and one may pay a higher or a lower Canadian tax compared to U.S. tax depending on the situation.

For non-residents, the source of income serves as the basis for taxation. If the income comes from a Canadian company, he or she pays Canadian tax. If it comes from a U.S. company based on Canada, he or she pays U.S. Tax.If in doubt or if inexperienced, the best ways, still, is to get the advice or enlist the services of a tax specialist. There are aspects of taxation that need to be addressed with properly with the help of an expert or a professional. Being unable to do it properly or overlooking certain aspects can result in penalties, charges and double taxation.

 

A good tax specialist can identify issues and problems and can provide solutions immediately. They can also provide you with options designed to minimize the tax that you are paying or to take advantage of existing exemptions. Although tax seems to rob one with hard earned money, with a taxation specialist/expert, you get to make tax work to your advantage and minimize the disadvantages.

Read more »

Your Creative Solutions on Filing US Taxes from Canada

In terms of taxation, the US is the only country that imposes tax on US citizens wherever they are and wherever they acquire their income. On the contrary, most countries only acquire residents to pay taxes. If you go abroad or work abroad, you don’t have to pay taxes.

The strict rules of the Internal Revenue Service (IRS) require each citizen, regardless of where they reside, to report their worldwide income and file their US tax returns promptly each year. This means that U.S. citizens working and residing in a country must pay taxes for the money they earn from that country.

For some countries, such as Canada, U.S. has made an agreement to exempt U.S. citizens from being taxed for the income they earned and taxed in those countries for the purpose of preventing double taxation which is a great burden to an individual.

There are strict rules, however, that govern this. If a U.S. citizen fails to complete the U.S. tax return accurately and in a timely manner, a person can be charged with penalties, interests and can subject to double taxation. Furthermore, they can be denied of legitimate expenses.

There are three possible scenarios for a U.S. citizen in Canada:

• You’re a U.S. Citizen residing in Canada. A U.S. citizen can be exempted from filing taxes provided that they are a resident of Canada. The requirement for residency is a stay in Canada for a period of 183 days in a calendar year. This applies particularly to those that declares Canada as their primary area of residence. This, however, does not exempt him or her from filing taxes in Canada. He or she is still bound by the taxation laws of Canada and still must declare his or her worldwide income on a Canadian tax return.

• You’re a U.S. Citizen and Resident who works in Canada. Because Canada and the U.S. share borders, it is common for U.S. citizens and residents to commute to work in Canada. In this case, a person can be exempt from Canadian or U.S. tax depending on the situation. If a person earns from a work in Canada, normally, he or she would be required to pay Canadian taxes. However, if a person is earning from a U.S. company located in Canada, he or she may be exempted from Canadian taxes (but will be required to pay U.S. Taxes).

The rules regarding taxation between Canada and the U.S. are covered by article XXIV of the Canada-U.S. Income Tax Convention of 1980. The rules will specify whether a person can be taxed in Canada or in the U.S.

Filing US taxes from Canada is governed by a rule that require knowledge and experience. If you think this is beyond your skills or if you want assistance, there are a number of US Tax filing services that could help you with Filing US taxes in Canada. Not only will this save you time and effort, but it will also ensure that you follow the rules and laws accordingly, thereby avoiding any penalties or additional charges.

Read more »

A Guide Through Flourishing Your Personal Finance Endeavors

Have you ever wondered about where all the money that you earn goes? Ever pondered why your money vanished in a heartbeat even after long days of hard work, or don’t even know what are the taxes that you are paying? Are you having problems on how to manage the moneys you make? If yes, then it is about time that you gain knowledge about personal finances. Start by doing or applying the routines that you’d read below in your daily life.

BUDGET - yes, whatever you do, wherever you go, whenever you use money, you have to always make a financial plan and arrangements. Take time to decide yourself where you want your money to go, and how they should be spent. Put it in your notes or making your own plan book would be better, but the most important part of planning is always putting it in your mind and applying it through your body.

Check your other financial statuses from time to time. Know them and be aware of your past, present and future financial activities. For example, if you are a dual citizen (U.S. – Canada), you could always consult a Canada US tax accountant to file your taxes. That way you’d be able to identify whether the taxes you obtain and impart is correct or not.

It is also very important to keep your life as debt-less as possible. Stay away from meaningless credits that would only burden you in the future. Some debts are really inevitable to make so as much as possible pay them as soon as you can, especially debts with interest or added payment. The same goes for your bills. Have a clear list of the bills you pay so that it would be easier for you to set aside money for settling them. Why risk in reaching their dues and having to pay them at the same time when you can avoid that by adding your bills in your financial plans?

If you’re working for a company, of course you’d get a hold of bonuses and a yearly tax return. Do not put them to waste by hastily spending your money to wherever your feet would take you. Instead, as mentioned above, for every money you receive, create a plan for them no matter the amount. You can save a part of it, use the other for settling bills or loans, and buy something you wanted to buy for a long time with the remaining balance. It shouldn’t be exactly like that, but you can have it in any way you’d like as long as it would benefit you in the future and not the other way around. However, if you feel like you did not receive the right amount of tax return, there are many ways to be sure of it. You can consult with your company accountant or for cross borders, it’d be better to have the help of a cross border tax specialist you have in your area. It is important that we get what we are entitled to get, after all.

Lastly, learn to SAVE. Do not just sell out all your money every payday. Make it a hobbit to put at least 10% of your income to a separate bank account. Doing that would not only help you in the future, but that could be the root of your successful and happy life.

There’s a whole lot more to be aware of when it comes to money, especially money that you yourself produced. Have time to read, watch and learn more about your personal finances because having the knowledge in that is essential for your hard work and perseverance to be paid off.

Read more »

CRA: How to file income tax return online

With the due date for filing taxes fast approaching, the CRA (Canada Revenue Agency) has made filing taxes online fast, easy, and secure. In just once click, taxpayers can review their tax information, check their return, and send it online to the CRA. Filing online is also easy, as certified tax software programs guide you through the filing process, do automatic calculations for you, and guarantee that you don’t fail to benefit from any credits you may be eligible.And with the same high level of online security used by financial institutions, CRA ensures taxpayers that online filing is safe.

Filing US taxes in Canada can be done in three easy steps online: 

1. Prepare records needed for filing

Gather all your income tax information: T4 and T5 slips, receipts, a copy of last year's return for reference, etc. You can also register for “My account” to change address, view tax slips, change your return, check your benefit and credit payments, set up direct deposit for a quicker refund, and so much more.

2. Get tax software certified by the CRA

Taxpayers have the option to get programs for free or those that have a fee to use. Upon entering your information, the software will ask you key questions based on your income tax situation. These questions are based on the records you’ve provided in step 1. Afterwards, the software will do the computations. It also allows you to review your return and get a personal copy of your record. To find out software programs certified by the CRA, go to www.netfile.gc.ca/software.

3. Send your return online to the CRA

After you’ve submitted your return using the software, you will receive a CRA confirmation number. Make sure to keep this number for your records.

Don’t forget to file your 2015 income tax and benefit return, and pay any balance owing on or before April 30, 2016. For self-employed workers and their spouses or common-law partners, you have until June 15, 2016. If you need to settle a payment, check cra.gc.ca/payments for a list of online payment methods.

Read more »