Small businesses are taking the world by storm as more and more people opt to work for themselves and create their own legacy. With growing businesses come growing pains and many small business owners are prone to making many mistakes – especially when it comes to taxes.
If you are a small business owner, or are thinking about starting your own business, avoid the hassle of tax-time headaches by avoiding these common mistakes:
1 Not Keeping Receipts
If the CRA sees any amounts on your claim that seem a bit too high or suspicious, they are entitled to perform an audit on your return. This would require that you provide receipts as proof of expenses so the CRA can compare the totals to those on your return.
Some businesses make the mistake of relying on their credit card statement as a record of expenses for their company. Unfortunately, the CRA does not accept credit card statements as evidence of expenses.
To avoid any potential issues with receipts and expenses, keep all receipts related to your business. Maintain an organized system by writing exactly what the receipt was for on the back.
2 Claiming Personal Expenses
When certain aspects of your personal life are used to run your business, it is important that you make a clear distinction of what percentage is business and what percentage is personal. When you fail to divide the usage, filing your taxes will become a confusing mess that will need to be sorted out.
For instance, you may use your personal vehicle for business purposes. By tracking the amount of time you use your vehicle for business, and comparing it the time you use it for personal reasons, you can generate a percentage that you can then apply to vehicle-related expenses.
3 Inaccurate Payroll Records
Many small business owners take it upon themselves to manage payroll to their employees. However, a disorganized payroll system not only creates a nightmare when preparing to file taxes but can also result in some hefty penalties if not done correctly.
Speak to a professional accountant about how you can best organize your payroll system and properly classify your employees to avoid tax related issues.
4 Forgetting to Charge HST
When your small business makes less than a $30 000 annual income, a registered HST number is not necessary. Some businesses, however, find themselves experiencing an increase in income and surpass the $30 000 mark before realizing they have yet to apply for an HST number.
It is recommended that all small businesses, despite their annual income, register for an HST number right away. This will ensure that you are prepared should your annual income surpass $30 000. Otherwise, you may be penalized for not charging taxes if your annual income is greater than that amount.
5 Failing to Report Cash or Trade Payments
Some small business owners believe that if a transaction is not recorded on paper then there is no need to claim the payment as income. This is very illegal and all cash and trade exchanged for product or work must be reported.
If not, the CRA may impose severe penalties that include charging interest, court fines and possibly jail time. It is best for all small business owners to report all income and keep copies of receipts made out to customers and clients.
6 Being Disorganized
Overall, the biggest mistake small business owners make is being disorganized. Tax time is the worst time to play catch up on your record keeping.
An experienced accountant can help you keep all your records organized as well as aid you in preparing your taxes.
Contact Liu and Associates today with any questions you may have about organizing your small business and preparing for your tax return.