Filling T2125 - Postage Stamps for Lettermail

[2006balla]

Hi,

I was wondering which section in the T2125 is appropriate for the expense of lettermail stamps for oversize packages. This amount can run $10,000+ for the year.

Office expenses

Line 8810 – Enter the amount you spent on office expenses. Office expenses are any smaller items you purchased for use in your office, but were only used during this tax year. For example stamps, paper, and staples would be considered an office expense. Desks, chairs or even a stapler would be considered capital costs and could not be included here.

Delivery, freight, and express

Line 9275 – Here you can include the cost of any delivery, freight, or shipping costs related to your business.

I was thinking it is more appropriate under Line 9275 since it mentions shipping costs.  Suggestions?

Thanks,

[momcqueen]

If your postage costs run $10,000+ per year then your sales performance warrants professional advice; you’ll be doing yourself a favour by taxing your business taxes to a tax specialist or accountant.

Don’t try this at home.

[ypdc_dennis]

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@2006balla wrote:

I was wondering which section in the T2125 is appropriate for the expense of lettermail stamps for oversize packages. This amount can run $10,000+ for the year.

Office expenses

Line 8810 – Enter the amount you spent on office expenses. Office expenses are any smaller items you purchased for use in your office, but were only used during this tax year. For example stamps, paper, and staples would be considered an office expense. Desks, chairs or even a stapler would be considered capital costs and could not be included here.

Delivery, freight, and express

Line 9275 – Here you can include the cost of any delivery, freight, or shipping costs related to your business.

I was thinking it is more appropriate under Line 9275 since it mentions shipping costs.  

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9275 for the stamps you use to ship stuff.

Stamps for office expense would only be for office administration related stuff -- mailing payments, tax forms, paperwork, etc.

It is all about how the stamps are used, not about them being stamps.

-..-

[cumos55]

The basics of Form 2125 were developed long  before  people started selling on the internet.

Then came Part 2 where the website was identified.....  On eBay  the store  is our website.  This was added a few years ago.  A seller without a store adds inventory to eBay's   website

Our uniqueness on eBay includes -----

(1) Total income includes sale of the item plus postage....  Buyers pay one amount for item plus postage.  Sellers pay postage which becomes a business cost, which the seller pays when a parcel is mailed.

(2) Selling fees --- eBay fees  plus Paypal fees. eBay fees include store  fees which is "rent" for our website.   eBay and Paypal fees are a single total cost for selling on the internet.

(3) Internet use, the cost of access to the internet,  is the equivalent of "rent".   It is a part of "store rent".  We pay for the cost of internet use...   My computer is dedicated very close to 100 % towards selling online.

Our total costs for selling on eBay includes ...postage paid by buyers ...  selling fees (eBay fees plus Paypal fees)  and ..... use of the internet.  This is the cost of selling online.

Line 8810 is for a business without a website.....  The use of stamps is a minor cost  

Line 9275 is for a local business  that uses the shipping costs  specific to that business.... Selling and shipping large items, without the use of a website to sell

Now... Where  do our costs relating to online selling go on the tax form?   There is no specific line or lines for these costs.  

Lines 8810 and 9275 are there for businesses that do not sell online.

My postage costs include lettermail plus parcels.....  costs related to selling online.  This is where my cost for lettermail is included.

The only place that I can place my costs... is line 9270,  identified as .....Other costs..

these costs are specified as .....Postage, Selling fees and internet use ... and indicated for line 9270 on the tax form.   These are my costs for selling on-line.

Line 9270 becomes my cost for selling on eBay

--------------------------------

This has been my approach to filling out my tax form

The following applies ----

(1) registered as a business in the province of Manitoba

(2) Having a website....  a store on eBay

(3) using Canada Post... lettermail and parcels....  to ship items purchased online

(4)  All business is conducted online....  using the internet.

[vintagenorth]

My hubby is a tax accountant and puts my amount for postage which includes stamps that I purchase for use on Lettermail on line 9275.

[cumos55]

A lot of what is done on the income tax form  is in many respects... by interpretation.

The most important part about filling the tax form is to include all income... and then all costs to run the business.

The end result is how much tax is owed

[femmefan1946]

@cumos55

KISS.

[ricarmic]

My postage costs show under 9275....

[cumos55]

Today is April 30...

If you owe some tax....  mail all tax forms today.....last day for doing so without a penalty ....

All residents of Canada....I still mail forms... Many now do the online thing

Tax day does influence sales to some degree.... 

First if someone owes money.... sales influenced  before April 30...  and then if they will be getting a refund ... sales influenced after April 30

Tax day in the US is April 15......  look to see if that time period modified purchases by US buyers.

[ricarmic]

I can always tell when "blow your tax refund" season is upon us or the USA folks... my favourite time of year!!!

[rose-dee]

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@2006balla wrote:

Delivery, freight, and express

Line 9275 – Here you can include the cost of any delivery, freight, or shipping costs related to your business.

I was thinking it is more appropriate under Line 9275 since it mentions shipping costs.  Suggestions?

---

I hope my two cents' worth isn't too late, but here it is:  In the final analysis, I really don't think CRA cares where an expense item is listed, as long as it's fully and accurately reported and the line item makes some sense.  That said, I too would use 9275 if the expense were that large.  CRA can always ask for your back-up documents if they find it odd.  Also, consistency helps.  CRA likes to see costs recorded in a consistent way from year to year, as you probably know.  

As for hiring an accountant to advise on this point -- save your money.  CRA will tell you this for free, although it's probably getting a bit too late now to phone and get their input.  They'll be rather busy now for a while.  

Just dropped mine off at the P.O. this morning.  It's wonderful to get this over with for another year!

[pierrelebel]

How to classify postage costs in your bookkeeping?

It depends.

If you charge your buyers a fee for "shopping and handling", the total of those fees becomes part of your revenues.

As such, your cost of postage becomes part of your "cost of goods sold" (NOT an expense).

Your gross profit (before expenses) would be calculated by

1) adding your revenues (selling price + shipping charge) (line 162 on return)

2) subtracting your cost of goods sold (cost of inventory sold and shipping cost (postage))

The difference is your gross profit.

From there, you subtract your expenses (eBay fees, collection fees, advertising, shipping materials, office expenses, business related communications and travel, occupancy costs (if applicable), bank charges and interest (if you borrowed to purchase your inventory).

The result is your "net profit".  That is the amount you report on line 135 of your tax return.

Here is a sample Profit & Loss Statement I prepared for eBay sellers many years ago.  It is acceptable to CRA (instead of T2125).

http://pierrelebel.com/lists/P&L-sample.htm

You can adapt it to your needs.

Good Luck

[fatdane]

I have always placed mailing costs in the delivery, freight, express category. When I had my 80 hour CRA audit nothing was said about it being misplaced. I would hesitate to place much into the "other" classification because then CRA might start to wonder about why the "other" total was so high.

If you have receipts for stamps and shipping they are legitimate expenses, and if CRA gets picky and wants them in a different category it should not change your profit or loss.

[cumos55]

The T2125  also has -----

(1) Capital cost allowance....A deduction as a percentage  allowed each year

Purchase of a computer and other equipment for 100 % business use.

Purchase of a vehicle..... A percentage of annual mileage for business use

(2) Use of a vehicle  ....  Expenses calculated for each year... A percentage for business use, based on business mileage as a percent of total mileage each year

(3) Business-use-of-home expenses... expenses calculated for each year.  The area  in the house, or apartment used by the business must be 100 % business

These three items can add a significant amount to the cost of business

----------------------------------------

For business use of home  do not subtract the principle part of mortgage payments...... Doing so means the business owns part of the house .... 

When the business ends the business must "sell"  these  payments for principle  to the owner of the house.   This can be a costly affair based on tax owed by the business   with this one transfer of money from the owner of the house to the business.

Mortgage interest yes.... Principle  which pays for the ownership of the house, No

Do not charge rent to the business... because the owner of the house must report that rent as income.

House costs such as  fuel costs to heat the house, can be deducted as a business expense. Other allowable expenses  are noted in Part 7 of T2125.