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When a client has an incorporated company and works out of his home, are the use of home expenses taken care of at year end by the accountant? Eg. my client claims 1/5 of his hydro, gas, taxes, etc for his company, but I don't think these expenses are run through the books every month as far as I know.
I've taken over a new client and the paperwork handed over from the last bookkeeper/accountant included copies of gas, hydro and water bills. From my first run through, it does not appear as if the they put any of these through as expenses. I can't confirm with them as I can no longer contact them. I'm ony working from a copy of their last balance sheet and profit loss statement, so I can't see what their entries were to come up with the final figures.
Hi there: From my experience in this kind of situation no amounts are put through the company books and definitely not on a monthly basis. Copies of all the relevant utility bills, etc. are kept and totalled at year end to give to the accountant who will figure out the amount allowed to be entered into the company books as an expense and they set up a year end adjusting journal entry to be entered. Rita Deering
That does make sense as my other couple of clients don't put through those expenses either.
What would you do with a cable/internet bill where the internet cost is for the company. Would those also be put aside and have the accountant calculate at year end how much of those invoices is a company expense? I figure it should be the same since in a home office, you can pretty well figure that you don't use your email and internet for 100% business use only.
His previous bookkeeper/accountant funny enough wrote off the entire cable bill.
Hi again: The internet charges are allowed as a company expense and can be paid for by the company. Rita
One further point in addition the to points Rita already answered.
Make sure that your client - and whoever is doing his personal taxes - understands that he has personal revenue from renting part of his home to the business.
There will be some offsetting expenses charged against this revenue from the internet, utilities, etc. but the calculation of the allowable portion of the expenses will be based on the percentage of the home "principally used for business". CRA has ruled that this means that the space is used about 90% for business. His kitchen table is not his office.
The facts of the particular case will determine if he actually has taxable rental income or not.
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