Tax time is always stressful, especially for small business owners with limited time and tax knowledge. From the pressures of deadlines to the specific record-keeping required to meet all requirements, a lot goes into a successful tax return.
With deadlines rapidly approaching, you may think there's nothing you can do now, but that's not entirely true. Whether you’re a sole proprietor or an incorporated company, these last-minute tax tips can ensure you make this tax season your best one yet.
1. Stick to the Deadlines
In business, some deadlines are more important than others. While some must be adhered to strictly, others have some wiggle room. Taxes, of course, are ones with no wiggle room at all. Missed payments and deadlines can lead to fees, fines, and interest, creating a big and expensive headache for your small business.
Rather than letting time slip away from you, get started as soon as possible and keep your eye on the calendar. Some Canadian companies fail to realize that the filing deadline — six months after the end of the corporate year — doesn't mean six months to pay.
If your tax payment isn't in the mail within 90 days of your fiscal year end, you may find yourself in a bad situation. Interest will accrue on any unpaid balances immediately after April 30, so take care of calculations as early as possible.
2. Consider Credits
If you think you'll always pay an arm and a leg for your corporate taxes, it's time to think again. Canada's tax system is designed to benefit new and upcoming businesses. It offers a number of credits and deductions that can help businesses focus on what matters most: saving money.
From Ontario's apprenticeship training tax credit to various research and development opportunities across the country, there are plenty of ways for small businesses to write off expenses related to the ordinary course of business.
For example, the federal Scientific Research and Experimental Development (SR&ED) tax credit for private Canadian companies can be worth up to 35% on qualifying expenses, offering a big way for you to reduce your liabilities.
The Industrial Research Assistance Program (IRAP) is another resource for small to mid-sized businesses that can subsidize up to 80% of a research and development (R&D) project.
3. Stay Organized
When it comes to saving money on taxes, nothing beats organization. Bookkeeping is one of the biggest benefits to your business, providing a definitive way to keep your revenues and expenses organized in one simple, straightforward system.
Filing your taxes properly means reporting your income accurately, and that's a hard feat to achieve if your records are a mess. Before tax deadlines roll around, find time to balance your books, generate year-end reports, and take a good, hard look at where you stand.
The reporting opportunities you have available can make quite a difference in projecting tax liabilities and ensuring you're prepared for the filing deadlines to come, helping to streamline the overarching process.
4. Avoid Audit Red Flags
Audits can be inevitable, even for the most straightforward and honest taxpayers. However, some actions can increase your odds of receiving a notice from the Canada Revenue Agency (CRA).
Small businesses are unfortunately frequently audited, largely for common tax mistakes that lead to over-deductions (taking deductions that are too large). For example, small businesses are permitted to deduct business use of personal vehicles. However, many entrepreneurs overestimate the kinds of mileage they're putting on their cars, leading to an inflated deduction that is a sure trigger for an audit.
In the same vein, travel expenses and dining out can also raise red flags, making you more likely to get a troublesome letter in the mail. To reduce your risk as much as possible, understand thoroughly what can and cannot be deducted, and keep immaculate records in case the CRA comes calling.
5. Do Your Homework
Tax often feels like your own personal Everest, but it doesn't have to be. In reality, business income tax isn't even a little bit as scary as it seems, especially if you're willing to put aside any mental blocks and dive into the resources available.
Your financial advisors can be a great resource when it comes to any questions regarding your businesses finances. That said, it is important to have a fundamental understanding of your current situation, as well as the basic principles of accounting. A quick online search will also provide plenty of high-quality small business tax guides with tips and information to help keep you on the right track.
No one loves tax season, but the process of filing for your small business doesn't need to be a frightening fiasco. With a little last-minute preparation, the right advice, you can breathe easy this year.
Please give a round of applause to Vancouver-based Enkel Backoffice Solutions who helped carefully craft this post. If you have any questions or comments, please share them below.
Disclaimer: The advice we share on our blog is intended to be informational. It does not replace the expertise of accredited business professionals.
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