Canadian Tax TipsKnow and Grow Your Business

5 Biggest Tax Mistakes and How to Avoid Them While Filing This Year

By February 22, 2018 No Comments

With tax season on our tails, we’re looking to make this process a little less painful for our Canadian small business owners. We hosted a workshop earlier in February providing tax season tips as well as introducing our new bookkeeping and tax service. We built this service and our workshop around helping you save money, save time, and avoid frustration. If you missed our workshop, here are 5 tips to avoid some of the most common mistakes people make around taxes.

1. Missed Expenses

25cdfb9b77d3419f4bd7e69a1b46179c.pngOne of the most important tasks regarding taxes is making sure that all of your expenses are accounted for. Most small business owners often underestimate their expenses and end up overpaying taxes every year. Other than forgetting to keep track of certain receipts and transactions, a big reason for this is also because they don’t know exactly what they could be expensing for their business.

Four of the most common tax deductions that are often missed by small business owners are:

  • Automobile
  • Insurance
  • Office expenses
  • Other business use of home expenses

If you’re unsure of what you can and cannot expense, check out this comprehensive list of small business tax deduction.

How to avoid:

Connect your bank and credit card accounts to Kashoo or download the statements at the end of the month and import your transactions daily, weekly, or monthly to make sure everything is accounted for. You can also attach digitized copies of your receipts on-the-go, so you don’t ever have to worry about losing them again.

2. Not Filing On Time

cfdb4bee3d986b3a2a8852ad913becdf.pngTax happens throughout the year. We always recommend you to mark the important tax deadlines on your calendar as a reminder. Although most business have the same tax deadlines, it is still important to note all the different tax dates throughout the year whether it’s the filing of returns, final payment dates, or RRSP contribution deadline.

Deadlines are far more important to note for those who have a balance owing than those who expect a refund. If you have a balance owing, you are really just delaying being repaid for the interest-free loan you gave the government, as well as certain provincial credits. Also, when you owe taxes, the due date will be different from the date that you file your taxes.

How to avoid:

Mark all important tax dates in your calendar to make sure you don’t miss any dates. If you are unsure about the important dates for your business, feel free to contact our customer support team and we can provide you with all the information.

3. Overestimating Expenses

Just as often as people underestimate their expenses, small business owners often overestimate their expenses as well. The CRA compares your expenses year on year to look for fluctuations or big changes. If they catch that there is a sudden spike in your expenses, it is likely that they will flag you for an audit!

How to avoid:

Print your income statement month to month and scan them to see if anything looks out of line. You can also review your monthly expenses by line item and look for unusual amounts in your expenses compared to the previous months. Keeping separate accounts for personal and business will help make this process a lot easier as well.

4. Not Charging GST/HST

For Canadian small businesses, it is mandatory to remit when you’ve billed at least $30,000 in self employment in any given 12 month period. Because of this, many small business owners don’t start charging GST and the applicable provincial taxes early on in their business because they often don’t think they will meet threshold. However, it’s important to keep in mind that the threshold is in any 12 month period.

For example, if you make $28,000 from October 2016 to September 2017, and make the remaining $2000 in October 2017, you will then be required to collect GST/HST. From there, you will have 29 days to register with Canada Customs and Revenue Agency (CCRA) so that you can charge GST.

The CRA will actually retroactively ask for all of the GST/HST you should’ve collected for that period which leads to a lot of business owners paying from their own pockets.

How to avoid:

Starting charging for GST and HST now! Whether or not you have met the $30,000 threshold within the last four continuous quarters, collecting your GST/HST and registering now can benefit you in more ways than one. For one, it will give your business credibility as clients won’t know that your company is currently making less than $30,000. Registering early also means you can claim back the GST/HST you paid for start-up purchases.

5. Not Budgeting for Taxes

a304a8b39530d9243a15f11e8e6fcdfd.pngWhether it’s due to tracking errors or just being unaware, a big oversight for a lot of small business owners is not budgeting for their taxes. This causes them to reach in pocket to pay their taxes at the end of their fiscal year which can often be enough to push your business into the negatives. Many small businesses also end up paying late fees and fines on top of their taxes as they are unprepared for tax season.

How to avoid:

Set up a separate account for your taxes altogether so that the money meant for tax-paying do not get touched throughout the year. Kashoo tracks your GST/HST and sales tax liability directly on the dashboard so you are never caught off guard about the tax amount you need to pay.

6. (Bonus) Waiting Until The Last Minute

calendar.pngAlong with not budgeting for your taxes, a common error that many small business owners make is waiting for the last minute to prepare everything that’s needed to file their taxes. Whether that’s doing their bookkeeping, preparing their income statements, recording their expenses—the rush to get everything together in tax season often leaves room for error and once again can easily lead to unnecessary late fees and fines.

How to avoid:

Keep track of your sales, expenses, and profit in Kashoo on a weekly or monthly basis to ensure that you are putting enough away for taxes. Record all of this, and many more, on-the-go with Kashoo! Try us free today.

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