A rental property may be one of the most effective ways to create wealth. Are you considering purchasing a rental property, or renting out a suite in your current home?  If so here are a few tips that you may want to consider.

·                    The income (or loss) generated from the rental property can only be claimed on the return of the owner of the property, or if there are joint owners (ie. A husband and wife) then it must be claimed based on the percentage of ownership.  As such, if you are still yet to purchase your rental property, it would be most beneficial to do so in the name of the person with the lower income level.

·                    If the rental property is a suite in your principle residence then most of expenses that you can deduct are prorated based on the percentage of home that is personal vs. rental  (ie.  If the tenant uses 4 rooms of a 12 room home then 1/3 of all applicable expenses would be a deduction against the rental income).

·                    Typical expenses that are deductible would include: Mortgage Interest, Property Taxes, Utilities, Insurance, Repairs & Maintenance based on the percentage of personal vs. rental, and the total of office supplies, advertising, legal & accounting.

If you own, or are considering the purchase of a rental property, and would like further advice with preparing your tax return please call Matthew & Amanda Birch at 778-786-1440 or email accounting@birchent.org

Have you visited our new website?  Check out the services offered and our current specials at www.birchaccounting.com

Many of the residents of Clayton Heights that I have met throughout the year are small business owners. For some of you this business operates part time out of your home, and for others your business is your sole source of income. Your businesses provide an important source of income, they provide tax benefits, and even more importantly they provide a source of accomplishment. Operating a business requires a huge investment in time and money, it takes determination, it demands integrity, and it requires community involvement. For those of you who started businesses this year, whether it has been profitable from the start, or you are yet to earn a dime you should take pride in your accomplishments and never give up. For those of you with businesses that have been in operation for many years never forget the experiences that you’ve had. Ensure that you take the time to remember where you came from.  Remember the trials that you’ve been through, and the successes that you’ve achieved.  This is how we improve, by learning from our failures, by analyzing our successes, and above all, by remembering all the individuals who have helped us to get where we are.

With the year now drawing to an end here are a few key tips that will help you to prepare for tax season.

1)                  Ensure that all invoices & receipts are kept in an organized fashion and that they are clearly marked as a businesses expense. For example meals & entertainment should have it’s own envelope or file, and you should write the reason for the expense on the receipt along with any other notes that might be important.

2)                  Locate all important documentation such as your prior year Tax Return, Notice of Assessment, Tax Installments (if any), Articles of Incorporation (if any), business registration, GST returns, larges purchases (i.e. Vehicles, computers, equipment), etc.

3)                  Make note of percentage of business use for your vehicle, and percentage of business use for your home. (Don’t forget to write down your odometer reading on December 31^st)

Please feel free to call or email us with any questions that you might have so that you can be adequately prepared for your year-end whether it is December 31^st or any other time of the year.

  Matthew Birch has ten years of accounting experience with many companies varying in size from 1 to over 100 employees.  He has worked with organizations in many different industries ranging from service to wholesale and retail sales and from construction to manufacturing.  Serving the accounting needs of Metro Vancouver Matthew owns and operates Birch Accounting & Tax Services from his home in Clayton Heights Surrey.  To contact Matthew regarding any of the services offered by Birch Accounting & Tax Services please call 778-786-1440 or email accounting@birchent.org.

1)      If you have never made a contribution to your RRSP now is the time to start. You do have until 60 days into 2009 to make contributions for your 2008 tax year, but the sooner you start the easier it is. Among other benefits you will immediately be able to deduct the contributions against your 2008 income.

2)      A new alternative to the RRSP is the tax free savings account(TFSA). This plan allows an individual 18 years or older to contribute up to $5,000.00 (after tax income) per year to RRSP-like accounts (ie mutual funds, GICs, bonds etc.). The income generated would then be tax free. For more details go to the Canada Revenue Agency website at http://www.cra-arc.gc.ca and type “Tax Free Savings Account” into the search field.

3)      Consider making a donation to a registered charity. Donations have the greatest tax reduction of any expense. The first 200.00 of contribution produces a Federal Tax credit of 15%, but any amounts greater than 200.00 are calculated at the top Federal Tax rate of 29% regardless of what your income level is. The provincial tax credit is calculated the same manner.

4)      Begin organizing your paperwork now. The sooner you begin to organize your paperwork the easier it is to complete your return. Remember that a large majority of people actually do get a refund on their tax return so the sooner you receive your refund the better. Secondly the advice I give all my clients is, “The best tax advice is tax planning.” It is easier to plan than to react

5)      If you are young and have only earned a few thousand dollars it is still in your best interest to file a tax return.  This is good for a couple of reasons:

a.       You will have to do so in order to get back any taxes that have been withheld from your employer

b.      To be eligible for a GST credit you must be 19 years of age, and have filed a tax return. 

c.       The other benefit is that you create RRSP contribution room.

If you have any questions regarding tax planning, or would like additional information on the topics I’ve discussed please feel free to contact us by phone at 778-786-1440 or email at accounting@birchent.org.

One of the largest contributors to an economic crisis such as the one that we are now witnessing is fear from the general public, and fear in the media. In most cases this is fear of the unknown. Our minds have been transformed by the recent good years, and we often can’t remember what slower economic times are like. To make things more difficult, even the experts seem to be confused. Every expert seems to have a different opinion of long and how severe this will be. As a result we lose the trust we had in the sound financial advice that we’ve received in the past. Fear begets more fear, selling leads to more selling, and sound judgment is temporarily set aside. If it is true that every event must have both a winner and a loser then who is the winner in this scenario? It is the investor, who realizes that fear has driven the economy further down than logic would suggest, and purchases good assets at bargain prices.

I would like to now suggest three reasons that we do not need to fear the economic crisis. In fact, when you begin to calm your mind you will find that you will be better able to weather this storm.

1)      The Media Loves Fear: The media loves big stories. That is how the sell their advertising. The larger the story the more excited they get. You can bet that they don’t mind this crisis because more people than ever are tuning in to watch the CNN Money, or logging on to Yahoo Finance or just watching the local news. If this is true then is it not also true that they may be blowing things out of proportion?

2)      Sound Finances and Budgeting Will Keep You Safe: The people affected most significantly here are those with higher fixed expenses than they can afford. This could be an investor who purchased a property to flip, but have not yet been able to sell, or someone who decided to move, and purchased their new home but have not been able to sell their old one. If this is you, and you are struggling to pay your loans each month, you need to seriously consider your options, maybe you can rent one property, or maybe it’s time for that price reduction. If you have a budget, and your fixed expenses are in line you have nothing to fear.

3)      Our Banking System is No.1 in the World: There have been many reports out recently that have suggested that while we in Canada are not immune to the this crisis our financial system is in fact in the best shape to get through this crisis. One of the reasons is because our lending practices in Canada have been much more stringent than in the US and other countries.

Please feel free to contact us regarding any questions that you may have.  If you would like assistance in creating a budget or reviewing your personal or business finances we are able to assist.  If we are not able to help we have a list of contacts that can.  We would also love to hear from you regarding your own goals, plans and achievements.  You can contact us by email at accounting@birchent.org or by phone at 778-786-1440.

Birch Accounting was pleased to be invited to Until Your Heart’s Content, a conference put on by the Shelley’s Angels Society, Sunday October 5th.  As their accounting provider we were offered a table at their trade show and we met a wonderful group of people.   During the trade show we offered a draw for $100 in accounting services and the winner was Lisa B. of Coquitlam BC. Many thanks to the Society for offering this opportunity for the community to learn and grow, we appreciate the opportunity to support you. Matthew & Amanda Birch

To sum it all up in one word, unimaginable.  The financial events of this week have been nothing less than a roller coaster.  I would like to say that I’ve never seen a week like this in the North American stock market in my life, but that would be a tremendous understatement.

Lets summarize, on Monday the American Insurance Group (AIG), one of the worlds largest financial institutions was in such risk of bankruptcy that the US Federal Reserve offered 85 Billion dollars for an 80% stake in ownership.  To put this into perspective, a US bail out like this has not happened since “The Great Depression.”  On the same day, Merrill Lynch was rescued from Bankruptcy with a buyout from the Bank of America, and Lehman Bros another very large American financial institution that is more than 160 years old was rescued with a 50 Billion dollar bailout.  And this doesn’t include other financial institutions in dire straits such as Washington Mutual (the largest Savings & Loan in the US), Morgan Stanley, or Wachovia.  With all of this news the TSX was down nearly 600 points, and its US counterpart, the DOW Jones was also down nearly 300 points.  It wasn’t until the US Federal Reserve along with the Bank of Canada, and many other Western governments pledged up to another 247 Billion dollars to ad liquidity to the North American markets that the stocks recovered with the TSX up 848.42 points, and the Dow Jones up 368.75 points.

Then on Saturday Sept 20 the US Fed continued its work to try and prevent an all out collapse of the market by announcing an additional 700 Billion dollars in relief.  To put all of this in perspective, Forbes.com says that Warren Buffet, the worlds most famous investor and wealthiest man is worth 62 Billion dollars. The amount of aid offered this week to the North American markets is greater than 17 times his wealth.

So what does this mean to you and me?  Well the first response by the banks to all of this is to tighten up credit.  This means that we will need to save a larger down payment to purchase the house we want.  This is likely to bring down housing prices because there will be fewer buyers able to purchase homes, and that starts with the pricier, and more unique homes.  Next, those of us with less than 20% equity will have difficulty trying to borrow more money for things like a new car, or home renovations.

In response, now is the time to pay down consumer debts like credit cards, and unsecured loans.  Now is the time to put together a personal budget and look for ways to reduce spending, and only if you have a large amount of available cash, now is the time to look for bargain investments.

Which of these statements best describes you when it comes to budgeting:

a) I keep a very detailed and balanced budget that I review every month.

b) I have prepared a budget but I rarely look at it.

c) It sounds like a good idea, but I just don’t know where to begin.

Most of us would say statement c) best describes how we feel about budgeting.  In fact depending on which study you read the percentage of people that actually follow a budget ranges between 1-5%.  I would like to recommend a few ideas that might help us get started, and alleviate any fears that we may have with keeping a budget.

First let me start by making this statement: “A budget is the most significant and simplistic tool to creating wealth.” Let me explain.  In its most simple terms a budget is nothing more than a rule of measure.  To know if we are on track financially we need something to measure our current financial status against.  Stated another way, if we were to embark on a journey across the country would we not first plan our trip?  This is the significance of a budget.  To meet our financial goals we need a plan of how to get there.  I would like to offer four suggestions to assist you with your plan.

1) Start to Track Spending

The first place to start is by tracking your monthly spending for the next two to three months.  This allows us to average out monthly spending, and isolate or eliminate one time purchases.  Expenses should be categorized into fixed or variable.  Fixed expenses include those that are recurring and cannot be easily altered such as mortgage or rent, car payments, utilities, and anything to which you have a formal contract.  Variable expenses can be more easily manipulated.  Examples include groceries, fuel, clothing, gifts and donations, and all of our miscellaneous spending.

2) Create a Realistic Ideal

I know, I know, a realistic ideal.  Is that not the definition of an oxymoron?  The goal however is to recognize that for a budget to work it must be realistic.  This means that we cannot just expect to cover a budgetary shortfall by increasing our income 25%, and it often takes time and sometimes money to alter our fixed expenses.  It also means that we need to create an ideal, or a goal that will challenge us.  The result is that we want to first list our current income, subtract our current fixed expenses, and then subtract our variable spending.  Once this is done we either have a surplus to which we should invest or a shortfall meaning that we need to alter our variable spending to eliminate this shortfall. 

3) Wiggle Room

Some people call it “mad money,” I simply call it Wiggle Room.  What I mean is that we need to ensure that we build room for error into our budget.  What we are trying to do is eliminate the #1 excuse budgets fail, which is because we get discouraged.  If the budget is too tight and we fail the chances that we continue are greatly reduced.

4) Review Monthly

The final step is simple.  We need review our actual spending compared with our budget once a month with an accountant or family member we trust.  This will ensure that we follow the plan we have created.

I recognize that for some of us this comes easier than for others, but I believe that when we consider these simple steps, and recognize the significance that a budget will play in our lives the process becomes easier.

In fact I would like to put forth this challenge to all of us: First, create a list of 5 financial goals that we would like to achieve in the next 12 to 24 months.  Be specific.  Second, follow the steps I’ve outlined above to create and maintain a budget that will help you achieve those goals.  Third, show your goals and budget to an accountant or family member you trust, solidifying your plan, and allowing them to encourage you.

Please feel free to contact me regarding any questions that you may have, or if you would like assistance in creating a budget.  I would also love to hear from you regarding your own goals, plans and achievements.  You can contact me by email at accounting@birchent.org or by phone at 778-786-1440.

 ___________________________________________________________________________________________________________

Matthew Birch has ten years of accounting experience with dozens of companies varying in size from 1 to over 100 employees.  He has worked with organizations in many different industries ranging from service to wholesale and retail sales and from construction to manufacturing.  Serving the accounting needs of Vancouver and the Fraser Valley Matthew owns and operates Birch Accounting & Tax Services from his home in Clayton Heights Surrey.  To contact Matthew regarding any of the services offered by Birch Accounting & Tax Services please call 778-786-1440 or email accounting@birchent.org.

The last five years have been fabulous! Isn’t that true? Anyone who has owned a home during this time has recognized an increase in value, which in many cases has been double our original purchase price. Additionally many people have taken advantage of increased equity, and relatively low financing rates to pick up an investment property, or quick flip a pre-construction condo or townhome. I know that I’ve been a part of some of these activities, and it’s been very profitable. Hasn’t it?

Wait just a minute though. Maybe it hasn’t been all that profitable. Yes the there were a few years when you just could not lose.  There were too many people wanting to get in on the action. They had been renting all their lives and now realized that they could afford to purchase their first property. Or maybe it was because family sizes are getting smaller and hence there are more people wanting to purchase smaller properties. Or maybe it’s all those foreign dollars coming here to purchase a property in Vancouver because of the Olympics. What about the investment component? How many people just decided that it was time to try out their first investment, a pre-construction flip, or a rental?

It seems, we all learn, that what goes up must also come down. Okay maybe it’s not a down market. That’s what is happening south of the border, not here. They are the ones that overspent and were offered ridiculous mortgages - to people that could never afford them.  But then again, what if it happens here as well? Would it not be better to be prepared for such an event, than to react after it has happened? And if that doesn’t happen here would we not sleep better knowing that we had a plan anyways?

If during these years we have taken out equity for consumer spending, or purchased additional properties that are now on the market but not selling, then maybe we have to admit that for the first time in recent memory the good years are over. Now is the time to put together a budget and watch our spending. Now is the time to take a reduction in the selling price of the property that we are trying to sell so that we can get rid of those extra monthly mortgage payments, even if it means settling for a loss.  The upside?  Have you ever heard the phrase “In a down market cash is king”?  Well it is true. Cash will keep you afloat if you cannot get more credit. Cash will allow you to expand your business when others are contracting. And cash will allow you to find bargain investments when everyone else is being forced to sell.

In the coming weeks I will expand on some of the topics that I’ve touched on here starting with a budget. We all know that keeping a budget is an ideal way to manage our finances; the difficulty is that for most of us we just don’t know where to start.

Thanks for reading,

Matthew Birch, CMA

Birch Accounting & Tax Services

778-786-1440

matthew@birchent.org

www.birchaccounting.com

Accounting — Your Management Controls

Would you ever drive your car blindfolded? Obviously, not!

Nonetheless, every day millions of business owners drive their businesses without knowing their financial locations: where they have been, where they are, and where they are going. That sure sounds blindfolded to us.

As your profit and growth expert, our primary role is to ensure that you have the historical data that will tell you where you have been and where you currently are. With that information we can provide a professional consultation that will help you determine where you want to go while creating an action plan that will help you get there.

With this 360 degree view of your business, you can plan effectively and then track your progress against your goals. It will also help you anticipate obstacles so that, when encountered, you can easily maneuver around them rather than allowing them to slow you down.

With our help you can’t go wrong.