10 Tips to Make Your Year-End Easy and Your Accountant Happy
When it comes to business taxes, the early bird gets the worm. Leaving things to the last minute will not help you minimize your tax liabilities and may even result in you paying more tax than required.
Here are 10 tips to help you get organized, stay on top of things and keep both you and your accountant smiling:
- Work with a professional.
Nothing can replace the knowledge of a chartered accountant who is up to date on the most recent tax rules. “I’ve worked with clients who did their own tax returns previously,” says chartered accountant Cherry Chan. “Nine out of 10 times I’ve discovered mistakes or [found] missed deductions that they could have taken.”
It’s obviously more expensive to hire an accountant than it is to do your own taxes, but invariably their help can save you money in the long run because they can help you plan and identify ways to lower your overall tax liability.
- Be proactive.
When it comes to tax planning for your business, timing is everything. Schedule a meeting before or during your fiscal year. “There’s only so much you can do after the year-end,” says Cherry. If you wait, you could miss out on opportunities to reduce your tax burden.
- Keep proper records.
No matter what you do during the fiscal year, it is crucial that you keep accurate records. Without them, it is harder for your accountant to give you tax planning advice and to estimate your tax liability.
Cherry says keeping paperwork organized will also help your business in other ways. Without proper records, it is difficult to keep track of what’s going on in your business. “From cash flow, inventory management, collection and paying vendors promptly, good record keeping will help you get to know your business better,” says Cherry.
- Store your records for safekeeping.
In most cases, you need to keep your records for at least six years. Ensure that you file paper documents in a secure location and back-up your electronic records.
- Get and stay organized.
If the thought of using spreadsheets to track your finances tempts you to throw everything into a desk drawer for your bookkeeper or accountant to sort at the end of the year, consider switching to an easy-to-use digital solution instead. Software programs like QuickBooks have made it easier than ever to keep track of your business.
By ensuring everything is up to date, you will always know how much money is in the bank, how much customers owe you and how much you owe your suppliers. Unlike manual spreadsheets, QuickBooks will even calculate your GST/HST automatically.
If you use a point-of-sale (POS) system such as Dream Payments, it can provide you with online reports and analytics to help you manage your business. Transactions processed through the Dream Payments POS can also automatically flow into QuickBooks Online.
- Keep your personal and business expenses separate.
Ensure that your business has its own bank account in which you deposit all business income and from which you pay your business expenses. Have a separate credit card and/or line of credit that is used exclusively for your business. If you buy new office equipment or a new laptop with your personal credit card, it’s all too easy for that expense to get lost in the shuffle. Plus, in an audit, you might end up having to prove that it really was for your business and not purchased for personal use. Remember too that bank fees and interest payments for your business are tax deductible.
- Always ask for receipts and label them clearly when you get them.
CRA will not accept credit card statements or cancelled cheques as proof of an expense in cases where an invoice or receipt would normally have been issued. Consider using a mobile app like Expensify to scan your receipts at time of purchase. It will even record every purchase you make with your credit or debit card.
“Canada Revenue Agency has a right to audit your financial record,” explains Cherry. “If you claim an expense, you need to have the invoice or receipt to substantiate that claim. Without support, the claim can be disallowed and your tax bill can go up.”
- Track business use of your personal vehicle.
Take a photo of your odometer at the beginning of each fiscal year and keep a record of how many kilometers you travel as well as the date and purpose of every trip. You can do this by keeping a log in your vehicle or using a mobile app like MileBug, aCar or Trip Miles.
Keeping accurate driving records will help you claim a per-kilometre charge or a percentage of your annual expenses related to your vehicle, including gas, repairs and maintenance and insurance. Your accountant can advise you on the best route to take.
- Don’t miss out on home office deductions.
Increasingly, business owners operate out of their home or have a home office. In some cases, you can deduct the part of your overall housing costs that relates to your workspace, such as the cost of electricity, heating, maintenance, property taxes and home insurance. The space you claim as your home office must be used for your business – if you are audited, CRA will request a floor plan of your home showing the space you’ve claimed to be using.
- Know the important dates associated with your business.
such as due dates for corporate tax returns, when to file GST/HST returns and when tax payments are due, including installments and any GST/HST amounts owing. There’s even a CRA app to remind you of those dates.
While we hope these tips are helpful, they do not replace nor are they meant to be taken as professional accounting, tax or legal advice for your business. It is important to consult a professional who can review and advise you on your own personal business situation. To connect with Cherry Chan, Chartered Accountant, please visit her website.