Which means there are a lot of business owners trying to get their business paperwork together so that you can file your personal taxes.
As a tax preparer, there are a lot of mistakes I see business owners make, which inevitably causes them to pay more tax.
This is my “Top 9” list, which also gives you a few “insider tips” as well!
1. Charity Receipts
Sometimes, business owners try to put their charity receipts in the business name, thinking this gets them a better write off.
The opposite is true. You have a better write off on your personal tax return.
A registered charity should be written off in your personal name. You know it is a registered charity by:
- asking them
- looking for the 9 digit charity number
- looking it up on the government site
A registered charity is different than a non-profit. A non-profit should be done in the business.
If you donate to a non-profit, you should also keep “advertising” with non profits separate from “donations”.
2. Spending Habits
Are you combining your personal spending and your business spending?
There are many reasons to have a separate bank account (which we talk about in Business For Newbies course), but in this case this one is a big one!
When you combine accounts, you leave it up to the professional to try to figure out what expenses are business and what is personal.
Or you are asking them to wade through hundreds of transactions to find the ones that are properly business.
In either case, this leads to error.
The tax professional can make the time to properly do this, but your bill from them would be huge! And we know that customers don’t always understand big bookkeeping bills. So we try to do it quickly, and scan through them to find what we need.
There are also the “big box stores”, which don’t tell us what you bought. For example “Walmart” or “Costco” could be almost anything. When in doubt, we kick it out.
And if we kick it out, this means less write offs for you, and increased taxes on the bottom line.
Your shoebox or bad filing system can also cost you!
At tax season, there are millions of people trying to get taxes done. This makes this a very busy time for a tax preparer or a bookkeeper. As we sift through the shoeboxes, we try to make sense of it, but mistakes are made!
I suggest that you take our free course “Do-it-yourself Bookkeeping” for a clear idea on how to sort your business books so that you can
- Reduce your bookkeeping/tax billing
- Increase your write offs and reduce taxes
4. Know the write-offs
No doubt about it, the “write off” is the most powerful tool you have at your disposal to decrease your taxes.
Are you doing it right? Are you getting all the write offs you deserve?
In my opinion, when customers do their own books, I would estimate 50% of them miss potential write offs that they could easily put on their tax return.
There are also some interesting write offs, which have some special rules. But if you get those rules right, they are great write offs! Here are 3 examples
- vehicle expenses
We cover the write off in detail in our Business for Newbies class.
5. Forgotten Expenses
Sometimes, business owners just forget expenses. Often times, they are ones that are clear, but we just don’t think about them.
The #1 forgotten expenses, in my opinion? You might not believe it……
Yes, I said it. A cellphone.
Because we have the cellphone before we buy our business. It is usually in our personal name.
Then we just forget about it. Forget to grab the bills and turn them in.
We also forget that sometimes we can write off more than one cellphone, especially if you are a husband/wife business.
6. Get a pro
There are programs you can buy to do your own taxes, including business taxes.
How effective are those?
In my opinion, to use them for your personal taxes is ok.
But to use them for business taxes is to deliberately short change yourself.
The income tax act is “yay big”, meaning it has a ton of rules and regulations. Everything you do is subject to “reasonable” and subjective to interpretations.
A program cannot interpret your receipts. They can only prompt you general questions, and you answer them.
In my mind, however, general questions just doesn’t cut it.
Everybody’s business is unique, and their situations are unique. A professional can dig, ask good questions, and find you the best write offs.
If you do it yourself, then how do you know you have done it right?
7. Go Early
The nature of tax season for a tax professional or bookkeeper is just….well…busy.
As millions of people try to get their taxes done, we want to reward people that come early.
We prep for the season and we are often prepared early.
If you bring in your paperwork in the heat of the season…in our busiest time….I can almost guarantee you that we will make mistakes on your tax return.
So bring it early when we have time.
8. Money put away
We teach customers to always put away 25% of the money they receive, but we know that they rarely follow through.
Putting that cash away is hard!
When it comes to tax time, you may not have all your tax money in the bank. And if you don’t, then you will have penalties charged on the amounts you don’t pay.
If you don’t, you should talk to your professional and let them know there is a cash crunch. Sometimes, especially if you are incorporated, there are things they can do to temporarily help you out in the tax planning process.
9. Know your deadlines
Every business has deadlines. Nobody will tell you when they are.
You are just expected to know them.
If you miss them, Canada Revenue Agency will give you a penalty.
Some filings, such as GST/HST, you get a penalty for doing your paperwork late, even if you have paid them the money you owed!
Avoid unnecessary fines and interest, and know when your deadlines are.