Taxes are probably one of the most disagreeable topics for most business owners (and individuals).
However, you want to cultivate a mindset from the beginning of your business that you will want to be compliant and establish a good working relationship with your tax authority.
This is really the ultimate best practice!
Here are 5 items to consider and to get you started with thinking about your taxes in the right light.
Best Practice #1: Establishing & Maintaining Quality Books & Records
It all starts with having a good, credible set of bookkeeping and accounting records. This is the foundation of your business and there really is no substitute!
If you were audited by your tax authority, they require you to have a certain standard of records that is compliant within the law. Failure to do so may make it difficult if not impossible for your tax authority to properly review and trace the business transactions that you are claiming.
How can you claims deductions (from cost of sales and expenses) against your revenue to reduce taxable income, if the deductions are not easily traced in your business records?
Never place yourself and your business in this situation.
Get your bookkeeping in place now and make sure it is accurately in place!
We can help you . . . SEE HOW
Best Practice #2: Avoidance of Co-mingling Business & Personal Money
If you are a corporation, you must be careful not to combine any personal and business money – how do you do this?
It can be complicated, but the best advice is not to have your personal money anywhere around your business finances.
You will pay yourself a salary and if you have any expense reimbursements, but that is all! Remember a corporation is its own separate legal entity and cannot be confused or co-mingled with any other entity, including you as an individual.
If you are a sole proprietorship, the rules are more lax because the business and personal are together.
However, it is still important to keep the business deductions separate from anything personal.
To begin with, make sure that you have separate bank account for your business and that will go a long way to keeping your finances straight.
Best Practice #3: Understanding Your Behaviour with Tax Authorities
If you are contacted by your tax authority, never ignore them! Even if you are a bit nervous or hesitant about speaking with them, be sure to do so and promptly!
They often are just looking for clarification or more information about one of your tax filings, so be accommodating.
If you are, this will go a long way to their working with you and trying to sort things out. Remember they are there to help you, so don’t become annoyed with them.
Should you find that you need more help, than ask a professional such as a lawyer or accountant to help. You don’t have to face it alone!
Just make sure that you do in fact take action to comply with your tax authority!
Best Practice #4: Filing Your Taxes
This may sound obvious, but unfortunately there are many business owners (and even individual taxpayers) that do not file their taxes.
Since in Canada we have a voluntary tax system that relies on the taxpayers to file their taxes on time and accurately according to law.
Remember that you do not have a choice as the government has a record of your company and will find out eventually that you have not filed and paid your taxes. At that time, there can be serious consequences including fines, penalties and interest that are not deductible to your business!
So, remember to file your taxes and pay what is outstanding.
Also, know that filing your taxes on time even if you don’t have the funds to pay your taxes – is not a reason for not completing and filing your tax returns on time.
Best Practice #5: Hiring Tax Professionals
Even if you think you can file your own taxes, it is often not a good idea to do so, particularly for a business.
You can’t underestimate how complex it can become and the level of knowledge that you need to have.
It isn’t just about putting numbers into software! You really need to know what you are doing.
Also, you may be missing out on some important tax strategies that will save you money. This extends not only to your business but to your personal taxes as well. Sometimes there are tax planning initiatives that taken together that will lessen your tax burdens.
There are – business tax calculations together with filing schedules and returns, interim calculations of tax for installment purposes and also tax planning that should be taken to minimize your tax burden and keep you compliant with the government.
You may wish to consider our tax services – CLICK HERE.