It’s a lesson that every business owner has to learn.
For some, it comes after the first year in business when the realize they weren’t prepared, or after a few years of struggling to stay afloat.
For others, it’s something they take time to learn early on, and these entrepreneurs have a much higher shot at success.
It’s the relationship you have with your books.
It’s a little like when your kids go out to play in the yard. Even though you’re inside doing other things, you have a general sense of what’s going on with them.
You know they neighborhood, you’ve given them boundaries. And you keep that mental bead on them as you go about doing what you’re doing.
As a business owner, you’ve got things on the go that demand your full and present attention.
Maybe it’s serving customers, doing the payroll, or working to attract new clients.
You don’t have time to think about your taxes and books in the course of every day.
It’s enough to keep hold of your receipts.
And, besides…isn’t that what you pay your tax people for? Dealing with all the receipts and figuring out the taxes?
Well, sure. But that’s like taking that mental bead off your kids. Leaving things in the hands of the powers that be.
And when you do that, you can’t really know what the end result is going to be until it’s right there in your face.
Going into business means paying tax.
It’s the beginning of a year-round relationship with tax – not just a stop once a year to file, or a once a month trip to the accountant to drop off new receipts.
You owe it to your business to understand how those receipts will matter and where you stand financially in terms of your business taxes.
Without further adieu, here are my top five mistakes business owners make long before they file their taxes.
#5 They assume the tax preparer will just fix any mistakes.
Off you go to see your tax preparer, packing a shoebox full of receipts.
You may have already forgotten half of what’s inside.
You expect the tax person will work some kind of mathematical magic, because that’s what they do, and you’ll get the numbers back when it’s all done.
Understand that this is not likely to meet your expectations.
They will do the best job possible with what they’re given – along with the thousands of other clients rushing in during tax season.
Not only will you likely be charged more for giving them a disorganized pile of paper to sort through, but they’ll be forced to make assumptions on how to interpret your receipts.
In short, you’re probably going to pay more for a tax return that may not have been done the best way for your business, which means you’re paying more tax, too.
As we mentioned in a previous blog, you’re responsible to the CRA for any mistakes in your tax returns – and even if they notice them, it’s not your tax preparer’s job to warn you about the ticking time bomb just waiting to go off in your books.
#4 They don’t make sure they have all the paperwork.
This is a common problem for the disorganized entrepreneur with regards to their books.
How is your tax preparer to know if you’re missing receipts?
That some of your business expenses, like fuel, went through your personal account?
That all those write offs you’re expecting have corroborating documentation for the tax preparer to see?
Have you looked through what you’re sending to make sure they’ll have what they need? Remember: tax professionals can’t claim what isn’t there.
#3 They don’t take the time to understand the value of write offs in the tax process.
This is one area I focus on in my E-School courses. The more write offs you have, they less you’ll pay.
And who doesn’t want to pay less tax?
Through my ten-plus years experience preparing tax returns for businesses, you’d be surprised at the write offs I’ve seen entrepreneurs miss.
There’s no downside to learning what you can claim, and this is just one of the ways E-School can help your bottom line.
Your business is only going to become more profitable by reducing your taxes.
#2 They’re late or waiting until the last minute to file.
CRA essentially dictates that millions of people will be filing their taxes in really the same 3-month period.
For bookkeepers and other tax professionals in the industry, it’s an overwhelming amount of work, usually requiring a ton of overtime.
And you thought YOU felt rushed to do your taxes!
Exhaustion and burnout happen.
It can be harder even for professionals to remember countless little details as the paperwork onslaught continues- especially if your books are disorganized.
When you wait to the last minute, you’re courting the risk of catching the tax preparer when the energy well is all but dry, when they may be struggling to finish their workload by the deadline.
If you’re bringing your taxes in at the end of April, chances are you’re not going to get the best job, simply due to volume.
Remember: you’re not the only one who’s waited to last minute and the professionals are the ones on the front lines of the deadline.
#1 They don’t leave time for tax planning.
This mistake impacts Incorporated companies.
When you file taxes, even before you leave your tax person’s office, you should know what you’ll be declaring for taxes.
True, there will likely be some changes as they do the actual paperwork, but when you’re Incorporated, you get a pretty good idea.
How the conversation usually goes: “Hello, tax professional. Here are my books. Do them, get my taxes, and then tell me what the tax bill is.”
How the conversation should go: “Hello, tax professional. Here are my books. Do them, and then let’s talk about how much money I’m going to have. After that, you can do the taxes and then I’ll take care of the bill.”
Always be checking up, between the books being done and the tax return being done.
Otherwise, the tax preparer is going to rely on the default method. There is room for tax planning.
Fail to tax plan, plan to pay more money.
The “let’s talk” part?
Kind of important, no matter whether you’re a solopreneur or Incorporated company.
It’s one of the business owner’s most powerful and often underused tools.
Tax professionals can answer questions. Ask what you don’t know. Ask, “What should I know?”
Every visit to your tax person’s office is an opportunity to refresh that mental bead you have on what’s going on with your business.
Knowing how taxes work, knowing how -and what – to track, and developing a good organizational system for your books may seem like a lot of work.
But you’ll soon be able to take care of things the right way without having to think about it, so that every month of the year, the receipts stay organized, and your business will have a better chance at the success you deserve.