Tax time may be great for those running the nation, but no fun for entrepreneurs. Ask any small business owner, and they will tell you how daunting the tax season can be. You do not want to go wrong with your taxes, as even a small mistake can result in delays and a lot more struggle with taxation. Thus, most small business owners are busy re-evaluating their accounting records, finding lost receipts, or struggling to understand the regulations to file taxes.
Typically, lack of a tax specialist and proper bookkeeping and accounting gives you problems while filing your tax returns. But, even though you may have kept up with the bookkeeping and accounting throughout the year, taxes can seem time-consuming and difficult. If you find yourself scrambling with taxes each year and wished there was a simple checklist to help you in your tough times, then we have some good news. We’ve compiled a small business tax preparation checklist to help you:
Your financial records serve as the basis to prepare taxes. If you are unaware of your total annual income and the amount you spent, how are you going to calculate and file taxes? Maintaining proper accounting records not only promotes the sound functioning of your business but also makes the tax time smooth for you. Having each transaction recorded accurately along with proofs will not burden you with finding reasons behind a missing figure. Well maintained financial records also help you take full advantage of tax deductions and credits. Even if you hire a tax shelter accountant or tax specialist, the first thing they will demand is bookkeeping and accounting records. They’ll be happy to see it organized, or else you may have to work harder or pay more to get the work done. Organization is the key here. If you’re having difficulty juggling accounting and other business chores, then you should consider outsourcing it to professionals.
It is common knowledge that there are different tax forms for different types of businesses. Depending on the type of your business structure, you will have to select and file the T1 or T2 form. If you’re a sole proprietorship or partnership, you’ll be filing the T1 business income tax form. But, if you’re a corporate or a corporation, then you’ll be filing the T2 or corporate income tax return. While filling out the form, you’ll have to provide some basic information like your legal name. Make sure the information you provide matches with the legal documents you provide as proofs. In case you were married or simply changed your name during the past year, see to it that your name is changed on your legal documents.
Most startups fail to keep a separate bank account for their business transactions. Mixing your personal and business finances can lead to issues in your business’ financial management and taxation. In case, you do not have proper documentation, it becomes difficult to recollect where a particular amount was spent and for what purpose. Firstly, keep separate bank accounts for personal and business finances. Secondly, make sure you have all your bank statements related to your business account in place. This helps you go back to any missing figure or ensure that the balance sheet amounts match your bank statements. Even if you hire professional tax shelter accountants, they also demand your bank statements to review them before preparing tax returns.
Keeping track of their business expenses is the area where most small business owners struggle. The CRA or the Canadian Revenue Agency requires you to have sufficient documentation or receipts for all expenses related to your business. While you do not need to send them with your filing, you should maintain them in case they are called for. As mentioned earlier, most business owners struggle with misplaced and lost receipts during the tax period. This further gets complicated if the entrepreneur fails to maintain separate accounts for business and personal transactions. If there have been times where you haven’t been able to avoid paying for personal expenses through your business account, make sure the transactions are separated. Prevent deducting those expenses as business related. It’s best to keep track of these from the beginning of your venture. You can have a shoebox or a filing system to store these receipts. If you’ve been finding it difficult, outsource your accounting to professionals and they’ll guide you with tips to keep things organized.
One of the most important aspects of taxations is to know the various types of deductions you can take advantage of. If you’re operating the business from home, then you can avail of several home office deductions. The expense of owning or renting your home, certain administrative charges, some percentage of your mortgage payments, and more can be claimed as deductions. But, remember, that these deductions are only applicable to the portion of your home and percentage of the utilities used for business. This can be difficult to measure, and you may end up with errors in your tax returns. It is best to consult tax specialists to help you with estimating these home office deductions.
You may have purchased a computer or sold an office desk in the previous year. Have you maintained the receipts? If not, then this could give you problems when preparing taxes. Typically, assets like computers, vehicles, furniture and other such large purchases are expected to be used for more than a year. While you can avail of a tax deduction, the calculation does not involve the full purchase price of the asset. Since assets are prone to depreciation, you will have to calculate and deduct the depreciated value. Tax preparers will also require the details of the asset purchases like the date and price. So, make sure you maintain the receipts of assets purchased or sold during the year to avoid costly mistakes while filing your tax returns.
If you drive to work each day, then you’ll be glad to know that you can avail of tax deductions regarding vehicles used for business. To reap this benefit, you’ll have to keep track of the mileage for business use. Just like the home office deductions, you are only allowed to deduct the amount that equals the usage of the vehicle used for your business. So, for instance, if you drove 10,000 Km’s and only 1000 Km’s were for business purpose, then you’ll be able to deduct only 10% of the amount of owning and maintaining your vehicle. The cost usually includes loan interest, lease payments, parking fees, toll, repairs and maintenance, and insurance. So, if you haven’t started recording the mileage for business use, it’s time you start doing now.
There’s nothing worse than being unprepared for the tax season. Most business owners don’t prefer hiring tax specialists because they think of it as an added expense. But, doing so can lead to costly errors that can lead to financial losses, as well as stress. If you’re unable to cope with financial management or tax preparations, then it is prudent to hire a tax accountant. Since they specialize in doing business taxes, they can take away the burden and ensure reliable results. By outsourcing your taxes to tax specialists, you no longer have to worry about preparations and calculations. Instead, you can focus on other important strategic matters.
If you’re having issues with accounts and tax management, then request a consultation with us at Altitude Accounting.
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