The tax season is the most dreaded time of the year for many people- business owner or not; particularly if the beginning of tax regulation is not up to the mark. Learning about tax filing and different ways to save on your taxes so that your business makes more profit is an important skill to successfully run a business. Making mistakes with tax filing can have extreme consequences for your business. This post outlines various business tax mistakes you are probably committing and ways to avoid them.
Over-reporting or under-reporting your income can lead to serious complications. In a business, the cash flow may be irregular at times and keeping track of your exact income throughout the year is difficult. Hiring a bookkeeping expert ensures these records are accurately maintained and saves you a lot of trouble and embarrassment that would arise when you report your income incorrectly and get caught.
Many small business owners have a habit of not maintaining a well-organized payroll record which makes it near impossible to calculate the tax and results in penalties from the Canada Revenue Agency (CRA). Maintaining the payroll records is a round-the-year process, and it can save a lot of time and last-moment rush can be avoided when the tax season starts. There is payroll management software which you can rely on or look for virtual bookkeeping companies which also offer payroll processing services.
Mixing up your business and personal expenses is a common mistake among budding entrepreneurs. It can be compelling and tempting at times to use your business credit cards to pay for your personal expenses or leisure, but even the smallest personal expense done with your business cards can reflect adversely during your tax calculation. Keep your business account separate and if in an emergency, use the business cards for personal expenses. Make sure they are not reflected as claims while filing the business tax.
Skipping deductions can also pose a problem with tax calculation and claiming returns. Business owners should be aware of what can qualify for tax deductions to avoid making such mistakes. The amount you will be able to deduct is based on the size and type of business you own. The best way to avoid making any mistake is hiring a tax professional who has extensive knowledge of what kind of expenses are deductible.
This mistake is likely to cost you a hefty amount particularly if you fail to communicate the CRA about failing to pay the taxes within the due dates. The penalties and fines for late payment can escalate in a very short period, making even a few days of delay cost you dearly. By opting for on-time quarterly estimated payments, you can avoid problems and also become eligible for a refund. Income tax filing services from reputed companies is a wise choice to make sure it is smoothly done and you do not have to worry about it.
During an audit, the CRA will add all the deposits by the taxpayer and tally it with the tax return reports. In case the deposit is more than what is reported, you will be accused of unreported incomes. Hence, it is important to reconcile your bank account, and tax returns to ensure optimum accuracy so that you do not face any unwelcome situation during the audit.
The taxable amount depends on your business type and magnitude and it is important to file your business accordingly. For example, if you have a small business but it has been filed as a corporation then you will be charged twice the amount of taxes you are supposed to pay- once from the corporation’s profit and again when shared as dividend among the shareholder. Selecting a more tax-friendly business structure is essential to ensure maximum profit.
A professional who is trained and certified in accountancy can help with tax calculation and even advise you about the best way to maximize tax return. Since an accountant is solely responsible for your finance department, they will be able to ensure that no payments are overdue and bills are not misplaced that can lead to future tax complications. Hiring a bookkeeper and an accountant can free you of some major responsibilities and make the functioning of your business smoother.
If you’re a small business owner, health care insurance is considered among necessary and ordinary business expenses and can save up on your tax payable. However, if you own the business with your spouse and have a medical expense reimbursement plan for your employees where you can pay off their medical expenses, and claim them as tax returns, you can showcase your spouse as your employee to save more of the taxes.
Tax is a major part of any financially-independent person and not everyone is well-versed in its various regulations, and laws. The above-mentioned list features mistakes that particularly occur while paying business taxes and the ways to avoid them. You can always avoid the entire complication of tax management by hiring a trustworthy bookkeeping company which provides tax filing services.
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