As a small business owner, part of the joys of running your own venture comes with the burden of fulfilling your tax obligations. Making sure your taxes are accurately filed is an important step for every business owner. The CRA requires you to submit an annual tax return. It’s always advisable to handle this as early as possible so you can take advantage of all available tax deductions and credits which you are entitled to. Since tax legislation is a pretty complex subject, we always recommend working with a CPA to help you file your taxes. Additionally, watch out for the following common mistakes when filing your annual returns.
You Don’t Deduct Reasonable Business Expenses
There are so many deductions that you can qualify for. For instance, the amount of money you spent to start your business including interest you pay on loans can be deducted. Salaries and wages, as well as benefits given to employees, can also qualify for deductions. If you use your vehicle for business, you may be able to deduct expenses such as insurance costs. Don’t make the mistake of filing too late because you won’t have enough time to identify all the deductions that you qualify for.
Claiming Extra Expenses That Don’t Qualify For Deductions
As much as you want to maximize on tax deductions and ultimately lower your tax bill, you need to ensure that you don’t claim on expenses that are not deductible. The CRA can assess your tax returns anytime and when they notice something has been incorrectly claimed as a deduction, they may penalize you for it. For instance, if you have a home office, you need to be very careful when reporting it as a deduction. Not every home office qualifies as a deduction; space must be used only for work, that is to host business meetings or invite clients and do work that is related to the business. If it’s only used for business part of the time then it doesn’t qualify for the deduction.
Failing To Keep Track Of Expenses
You may qualify for certain deductions but if you don’t have the supporting documents to account for them then you’ll miss out. Make sure you put in place guidelines on how to track expenses throughout the year. For instance, make it a habit to track all your expenses immediately when they occur. There’s so much technology available to help you record expenses with ease.
You Don’t Report Cash Payments
Cash payments that are received in exchange for work must also be recorded when filing your tax returns. In fact, the CRA has very serious penalties for those self-employed and contractors who receive cash and don’t report it. If you receive payment in trade, you must also report it when filing returns. For instance, you may have marketing services to a company which promised free accounting in return. You must report the value of this service on your tax return. Doing this will avoid interests and penalties for failing to include certain payments.
Sohail Afzal, CPA, CMA, MBA
Sohail Afzal, (CPA, CMA, MBA) is the founder & CEO of GTA Accounting Professional Corporation. He is a highly experienced Chartered Professional Accountant and businessman himself and understands the challenges that many businesses face when it comes to cash flow management. As an experienced business consultant & tax advisor, he is helping companies grow by providing the technical, financial, and contractual information necessary for strategic decision-making.