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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.
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Certain things shouldn’t be mixed, no matter what. Business and personal finances are just those things that should be kept distinct. Mixing both of these finances only leads to confusions and potential losses (and disasters). If you use your money interchangeably between personal and business purposes, it will become difficult for you and your small business accountant to determine business expenses.
You ask any small business accountant, and they’ll suggest the same. Why? Because it’s a big NO-NO in the world of business accounting. So how do you keep these two different and unmixed? It’s simple; just follow these seven steps.
1. Set Up Separate Accounts
First things first, open two separate accounts for your personal and business income and expenses. Do you already have a personal account which you are using to look after your business as well? This is a big mistake! You may lose track of your business incomes if you let all your personal and business incomes get accumulated at one place and make all your payments from there. Hence, find out which banks are offering the best business offerings, and open a new business account in that bank. Get a new credit card as well for your business so that you can look after major business expenses separately. Having a separate business credit card means you won't be tempted to use your credit card.
2. Store Receipts Separately
Are you a person who recycles shoeboxes and cereal boxes for storing important documents? Yes? Great! So now, you will have to find one more box and separate all your business and personal receipts and invoices. If you don’t use these boxes, then choose some other boxes, or drawers maybe, as two separate physical places for your business and personal affairs. During the time of financial audit or tax season, your small business accountant will find it easy to look at your business expenses and incomes. If you hand over a file full of mixed documents, it will waste your time as well as theirs.
3. Draw a Line
You have created a separate business account and have a separate credit card as well. What next? Now, it’s time to change the way you spend. Use only the business card for business-related transactions. If you have exceeded your home’s budget for the month, don’t be tempted and use your business credit card to buy groceries and gifts. It will only impact your business accounts. Set separate budgets and stick to them. In case you cross either of your budgets, DON’T touch the other account.
4. Pay Yourself
As you are the boss, you need to pay yourself too. Just like you release salaries for your employees every month, you must do it for yourself as well. Set a realistic salary amount for yourself. On the 1st of every month, transfer that amount from your business account to your account. The same should apply to the months when your business gains profits or when it’s the time for bonuses. Once you get paid, you can create your home budget from that. And then, wait for the next payday!
5. Maintain Books of Accounts
Do it for your business incomes and expenses. Preserving bills, receipts, invoices, and other documents aren’t enough. You need a written overview of all your incomes and expenses so that you don’t miss out on any transaction during tax filing or calculating profit-loss figures. If you only rely on documented proofs, you may miss out on minor expenses that don’t actually have a supporting document. You and your small business accountant will end up wondering where your money went. Hence, create detailed books of accounts for all your business transactions. You can use software like QuickBooks, or let your accountant do it for you.
6. Separate Assets
This is very important! Along with separating your accounts and budgets, you also need to separate assets. If you need a new laptop for your business, pay for it from your business account. If you are buying two laptops together - one for your spouse and one for your employee - get separate bills for each. Likewise, you must have separate bills for other stationery items, electronics, and other inventories. Have separate bills for the electricity and water you use for business purposes. Don’t end up paying these bills from your personal account, or vice versa. Doing so will only disturb your budgets, and again, confuse your small business accountant.
7. Explain It to Your Loved Ones
Well, you have done everything from your end. But your family also needs to understand the importance of separating business and personal finances. Explain everything to your spouse, kids, friends, and relatives. Let them know that they aren’t supposed to use your business credit card at any cost. Also, request them not to ask you to buy something from your business’s account only because you have exceeded your monthly personal budget.
You can ask for more such tips from your small business accountant as they know what can go wrong during important processes such as tax filing and claiming returns.
At first, it may not be easy to keep things separate and tidy. But with time, you will get used to keeping your business and personal finances separate. Talk to your small business accountant as soon as you mix them up by mistake. Doing so will help the professional to separate the finances at the very moment.