Financial year has come to an end, and there is tax filing to tend. This is the time where business owners need to scramble down the receipts, bank statements, account books, and other important documents to meet the tax deadline. While you are already in a tearing rush to meet the tax obligations, you are likely to make mistakes that can cost you back. So if you successfully procrastinated the tax planning process during the whole year, we have got you covered. Here are a few mistakes that you can avoid to have an error-free tax filing and returns.
1) Messing up the Calculation
If you are using an old fashioned way (pen and paper) of filing your returns, you are exposed to the risk of calculation errors or even simple mistakes especially when you are pressed for time. You may forget to sign on certain forms or date them on time. On the other hand, using an accounting software can eliminate this risk. When you use a tax software, your chances of having a mistake is lowered. Several e-filers get their returns quickly and easily by using a tax preparation software. If you still prefer to file your taxes on the paper, take your time and at least run your figures through the tax software to make sure that your numbers are tallying.
2) Failing to Double-Check Your Work
You may have made errors while entering numbers which might have gone unnoticed. These errors can be detected while double checking your work. Even if you are in a rush and desperately need to file the taxes, you need to double-check. Any errors in the figures can lead to tax calculation blunders. Software systems are great to catch any errors related to your bank account numbers or Social Insurance Numbers (SIN). These systems are already based on the rules and guidelines for tax planning. Therefore, the moment you enter the details, it is checked by your software giving you the ease to double check during tax planning with a simplified and understandable format.
3) Slipping a Copy of the Returns
It is important to secure the copies of your returns of all the years for audit purposes. If you have lost your copies, you can request a new set of copies from the Canada Revenue Agency (CRA). The copies need to be produced to a money lender if you want a loan or to your financial auditor during an audit. Additionally, when you have a copy of your last year’s returns, tax planning for the following year becomes easier. When you go through the previous copies of your returns, you get an idea of your past transactions or processes - for instance, an account that you have closed or any deductions that you might be missing.
4) Misusing the Money Intended for Taxes
During the tight cash flow, you might use the tax money and the payroll tax money for various business purposes. By using up this money that's meant for paying taxes, you may create mismanagement of funds and end up with the delay in payment of taxes. All of a sudden you find yourself not paying your taxes on time during the deadline. The best way to avoid this situation is to create a business budget that separates the tax amount in a separate bank account well in advance.
5) Failing to Pay Your Estimated Quarterly Tax Payments
Small business owners need to pay tax payments quarterly, but they may fail to do so. When you miss out on paying the quarterly tax payment, you incur a penalty as a huge surprise at the end of the year filling. Moreover, CRA may even seize your assets if you miss out on several tax payments.
6) Mixing Your Business and Personal
According to CRA, personal expenses charged in the business cannot be considered as business expenses. You cannot deduct your personal expenses as business expenses. For instance, if you use a car for personal purposes, you cannot take the expenses for maintaining that car from your business account. When you don’t separate your business and personal account, you tend to get confused while filing taxes. To get tax returns for your business, you then need to dig into files and folders to find various receipts which lengthen the whole tax filing process. Mixing your business and personal taxes can create a huge confusion and wastage of time in identifying the account for each expense. Therefore, keep your personal and business expenses away.
7) Selecting the Wrong Tax Planner
There is no shame in seeking help from a professional tax planner for tax planning. CRA penalties can be strict, and you may end up paying taxes that you may legitimately do not owe. Tax laws change annually, and it is difficult to stay updated when you as business owners should focus on the growth and expansion of your business. When it comes to paying the fees to the expert, it is much less than paying the penalty for your tax mistake. You may get many tax planning professionals who might pretend to know the tax laws and provide the services at a lower price. Instead of falling in that kind of trap, look for a person who is certified and licensed. This will ensure that you file your tax on time, avoid penalties thorough tax mistakes, prevent delays in getting your refund, etc.
It is always the best solution to book a free consult from a reputed accounting firm to help file tax with utmost care and avoiding any kind of chances of an error during the end of the financial year.