Seven Common Tax Blunders that Canadian Small & Medium Enterprises Make
- When establishing your business, you need to decide what legal identity will best suit your company now and down the road.
- There are five legal identities that Canadian businesses can choose from.
- Know the different tax laws that apply to each to ensure that you make an effective choice.
- Consult a financial professional regarding what legal identity will open the most doors and be the most financially savvy for your company.
Failing to Seek Professional Guidance
- When you are concentrated on growing your business, it is easy to allow administrative tasks to slip through the cracks.
- Failing to keep thorough accounting records, missing tax deadlines, and improperly filing will compromise the success of your business.
- You will miss out on opportunities to save money and you will expose your company to risks that include Canada Revenue Agency audits.
Mixing Business with Pleasure
- Be smart and separate your business and personal finances.
- If you confuse these records you may compromise your ability to successfully file your taxes.
- The habit of mixing your business and personal finances may have severe consequences, including a potential lawsuit or causing you to lose your corporate status.
Neglecting to Pay Tax Installments
- When you establish a business, you may be legally obligated to begin filing monthly or quarterly taxes.
- If you fail to do so your business may be subjected to financial penalties and interest.
- Even if you are not legally obliged to file monthly or quarterly, doing so may reduce administrative complexities and prevent your bottom line from being hit by a huge tax bill.
Missing Out on Lucrative Deductions
- The CRA allows for all necessary and reasonable business expenses to be deducted from your taxable income.
- Do not be overly generous with your deductions, but also do not make the mistake of negating any valid business deductions.
- When you are running a small, medium, or growing business, you need to protect your profit margins by being strategic with your accounting practices.
- If you do not feel confident deducting certain expenses, collaborate with an accountant who understands what steps are appropriate and necessary to secure your company the greatest tax return.
Making Basic Taxation Missteps
- If you own a company that is earning revenue, you are responsible for properly paying your taxes in a timely manner.
- Dependent on your location, the type of company you operate, and what you do, you will need to pay a variety of taxes – failure to comply will result in an audit.
- As a business owner, it is your responsibility to file accordingly or to seek the help of someone who knows how to.
Using Financial Tools that Muddle your Transaction Records
- When you are selling a product or a service, you always need to keep accurate records of your cash flow.
- Use an accounting system that you understand and can rely on, so that come tax time you can easily call upon the necessary documents.
- Don’t make the mistake of thinking that financial software can replace a seasoned professional.
- Leveraging technology to keep great records is smart, but a computer program will not help you to create a long-term strategy that will sustain your business.
Owning and running a business is difficult and complex. It takes innovation, ingenuity, and an unrelenting commitment to success. Don’t let these seven tax blunders put a damper on your bottom line. Contact Hogg, Shain & Scheck and get back to focusing on sustainability and profitability.