Common Mistakes Small Businesses Make On Their Tax Returns
Paying taxes is tough, but making mistakes and overpaying can be painful. And of course, some tax mistakes can lead to a CRA review or audit. Ouch! It can be a challenge for small business owners to plan for their company’s taxes. After all, you are a professional in your field, not intricate tax law and taxes. The truth is that filing your small business taxes each year does not have to be stressful or a pain to do. With a bit of work throughout the year, filing your taxes can be much simplified.
But when you take the tax filing in your own hands, some pitfalls can happen. Questions like how do GST filing dates work, as well as varying deadlines and dates of income tax filings for small business are important. Missing a filing deadline can lead to a painful penalty from CRA. A good accountant can assist you with clarifying these things.
With over two decades of accounting services, Ocean Breeze CPA has faced uncomfortable situations that could have been avoided had the client been aware of a few details. To help prevent these problems and help small business owners get the best service, we have compiled a list of common mistakes to avoid when dealing with tax filing.
1. Failing to deduct the cost of office expenses
When you purchase something for business goals, there’s a chance it’s tax-deductible. For an expenditure to qualify for a write-off, the CRA needs it to be necessary for your particular trade or business. Many small companies, proprietorships in particular, may be missing the opportunity to write off some costs associated with their office within their home or similar on-site space they use to store materials, tools, and so on. This can result in a higher tax load than necessary.
2. Writing off vehicle costs
Many business owners tend to use their personal vehicles for business purposes. But some businesses are writing off nearly all of their vehicle costs without a supporting log that shows their daily trips, mileage and drive. As CRA actively audits vehicle costs, lacking that documentation can result in having your entire vehicle expense claim denied. Proper supporting records are vital, as are reasonable expense claims. Of course, these differ by industry and the actual business circumstances.
3. Keeping poor records
People forget to have a system that helps them track income and expenses on an ongoing basis. For some small businesses, it is simply recording their expenses. Some companies believe they’ll get those expenses recorded later but don’t, which can cost them dollars in unnecessary tax expenses. Others collect those receipts and give them to their accountant over time, resulting in the accountant having to re-work the figures, which elevates their invoice. Having all of your receipts together, organized, and available simultaneously reduces both of these costs.
4. Ignoring the business entity
Some people start a small business by selling their services to the public. They don’t give much thought to the ways you can arrange their business, and they may ignore or not realize the potential to grow from a proprietorship to an actual corporation which can result in considerable tax savings at certain income levels. If your annual income is growing and is over $125,000 - as a conversation starter - you should start discussing with your accountant whether or when incorporation would be advantageous. Incorporation can also provide a layer of “risk mitigation” that some owners may want to consider for reasons other than tax savings.
To avoid these mistakes, reach out to Ocean Breeze CPA. We are a licensed, public-practice, Chartered Professional Accountant (CPA) firm. We provide personal, business, corporate and non-profit tax services and associated services, such as bookkeeping and payroll. Our responsibility is to help you guide through the ocean of numbers for tax compliance and help bring you peace of mind.