The tax season is finally here. Individuals and companies are starting the strenuous process of arranging their finances to ensure that everything is in order before starting their tax returns.
It is a time-consuming process but one that must be completed each year. Despite filling out tax returns being an annual occurrence, it can still be stressful for many.
Across Canada, many individuals and companies make the same mistakes when they file their tax returns. Many of the biggest mistakes made include forgetting to include allowable credits or deductions.
If you have yet to begin the process of filing your tax return for your business, here are a few things to keep in mind to help ensure that you have your finances in order.
How To File Taxes For Business
Preparing finances for the tax season can seem like a daunting task. Starting the process early can help alleviate the stress and pressure of tax season. It provides you with more time to complete the process and ensure that it is done the first time correctly.
Here are a few things to know about filing taxes for your business this tax season.
Select A Way To File Your Tax Return
Before filing your tax return, decide which method you will use. The two most common ways are by mail and online. Some of the processes will take longer, meaning that you will likely be waiting a while before receiving your refund.
Choosing to go by mail means having to complete a paper return. Once completed, it should be mailed to your local tax services offices. The paper forms can be downloaded and printed off or collected from a post office or local tax services office. If choosing to take this route, ensure that you have enough time to complete and send the form back in time. After it has been completed and returned, it might be a few weeks until your refund has been processed.
Opting to fill out your tax return online will mean you will likely receive your refund in a shorter time. There are some restrictions to applying online, such as not being able to do so if it is your first time filing a tax return. It is worth checking to see what regulations and requirements are in place for filing your tax return online.
Keep Personal And Business Separate
Minimize the chances of filing your taxes incorrectly by avoiding mixing your business records with personal ones. Many business owners share a common issue: failing to keep both records separate, especially during tax season.
Keep everything separate. Credit cards, checks, bank accounts, and even recording systems have a separate one of each for your personal and business finances. The same is applicable to pay for expenses. Use personal money to cover the costs of personal expenses and business money to pay for business expenses.
By keeping things separate, it will make it easier to know precisely how much the business currently has, what it has earned, and how much it has spent.
Clear Record Of Documents
There are no specific documents businesses must keep required by the Canada Revenue Agency (CRA). However, your business should have a record of essential accounting documents. Within your company’s financial records should be purchase invoices, sales invoices, formal contracts, delivery receipts, tax returns, bank statements, and other financial correspondence.
In addition to these paper trails, ensure that you have your accountants working papers on hand. It is the information that they used to determine entitlements and obligations regarding taxes. These are associated with being a part of records and the taxpayer’s books. If and when the CRA asks for these documents, they must be readily available upon request.
Utilize All Resources Available
To help ensure that you file your company’s tax return correctly the first time, look to see what resources are available both in-person and online. You will find that there is an abundance of choices available.
For example, tax calculators are available if you are unsure about your taxable income. It can prevent you from putting the wrong amount on your form. You could use this 2021 tax calculator Ontario to help you determine what your taxable income is and how much you paid last year. Utilizing tools such as these can help to make the process of organizing your company’s finances far simpler.
Many of the resources available will be free to use. They could help you complete the form and avoid making any costly mistakes that might need rectifying in the future.
Remain Updated On Changes
The laws surrounding tax are consistently changing. It is important to be aware and remain informed about any changes to the regulations. Some of these alterations could have an impact on your income tax return, especially during tax season.
Before, during, and even after tax season, ensure that you keep updated about the rules and regulations surrounding tax laws. Check to see if any of the latest implemented changes will impact how you file your company’s taxes. It will help avoid mistakes, utilize potential schemes and benefits, and file your company’s taxes properly.
Seek Professional Support
For some business owners, filing taxes rarely gets easier when the new tax season comes around. New business owners will likely be unfamiliar with tax law, which makes completing their first tax return for their company a daunting task. Fortunately, it is a process that does not need to be achieved alone.
If the concept of filing your tax return fills you with dread, consider seeking the support of a professional accountant. Look for an accountant who has experience working with a business of your size. They will be able to provide you with valuable advice and information about managing your business financially. Your chosen accountant could also offer you information about keeping your business tax compliant, which will be greatly beneficial.
After the tax season has passed, you can still consult with your accountant and have them update you on any new tax laws recently implemented. The support they provide does not need to be limited to tax season; it can prove valuable throughout the year. The regular check-ins with your account are less paperwork and stress during the next tax season.
Reasons To Prepare Your Finances
Having the company finances in order can be beneficial for business. It provides a clear overview of where the company is at in terms of success and potential for growth. Business leaders can use this information to decide on areas that they can invest in and if any cuts need to be made.
During tax season, having your finances in order will prove to be the most beneficial. If they are not already in order, preparing them for tax season could help motivate you into organizing your company’s finances.
There are plenty of reasons why you should prepare your finances for tax season, and here is a selection of them.
- Avoid Missing Deductions – Leaving filing taxes early could mean you might miss something. You may even find yourself paying more to the person helping you prepare your return. Each year there is usually a new deduction that you could be entitled to. Filing your tax return early can help you claim all available deductions, including the newer ones. Taking advantage of these could help maximize the refund you receive, or even better, decrease the amount owed. Being prepared will help to ensure that you can take full advantage of the credits and benefits available to you.
- Receive Refunds Sooner – When your finances are prepared and ready, it can make the process of filling out the tax return form far simpler. You can benefit from the credits available, but it means that you can send the completed form back sooner. The sooner you send the documents back, the sooner you receive your refunds.
- Prevent Penalties – Late payments and tax evasion for business taxes come with severe penalties in Canada. The penalty can vary depending on the severity of the case. In some instances, it could be a penalty of $100. In other cases, it could be 50 percent of overstated tax credits or understated tax credits, depending on which is higher. There is also the possibility of significant fines, criminal convictions, and even jail time in some severe tax evasion cases.
The Bottom Line
Ensuring that the company’s finances are in order is crucial for any business. It plays a vital role in the business’s financial success, allowing it to grow and accomplish its set targets.
Having the company’s finances in order during tax season can help to make the process easier. All the information needed will be readily available to find, helping to minimize any delays in completing the tax return form.
Take the time to get your company’s finances in order. The timely process will be worth the effort made when you can complete your form promptly. Maintaining clear and organized records of your company’s finances will be helpful to have in the years to come.