Being a business owner is hard. The jump from employee to employer is one that we’re often unprepared for. The differences between working for someone and working for yourself are vast and perhaps one of the biggest gaps is with the tax system. As an employee, taxes are fairly simple; your employer makes their contributions, they provide you with the paperwork, and all you need to do is file your personal taxes.
But as a business owner? Here is where things get complicated. Especially for new businesses, this can get overwhelming, fast. Between T4s, conversations with accountants, and differing provincial tax laws, the amount of knowledge that you need as a proprietor is much greater than as a single taxpayer.
We understand this and understand the challenges you face when tax season rolls around. Here are six tips to make your taxes this year as painless as possible.
1. Be Organized
This may seem obvious, but one of the best things you can do for yourself is to keep yourself organized. This isn’t just for tax season but throughout the year. Making sure your receipts are in order and your books are balanced means that you’re not left scrambling when the deadline comes around.
Speaking of balanced books, the importance of this cannot be overstated. Whether you’re working with an accountant or filing on your own, making sure your expenses add up is of the utmost importance. Of course, experienced business owners are well aware of this, but mistakes are always possible. This is especially true when working with digital records. Something as small as a flipped sign (+ instead of -) can lead to utter confusion. Your tax preparer should notice this, but it’s also incumbent on you to provide the correct information.
All told, your balance sheets should come down to one thing: your assets = your liabilities + your equity. Make sure this balances out by keeping yourself organized year round.
2. Give Yourself Time
It’s important to understand that the amount of time you invest in your taxes directly reflects the quality of the final product you file. If you’re doing it yourself, a hasty preparation can lead to missed opportunities for deductions or even penalties from the CRA if they find that you’ve done something wrong.
Similarly, if you’re working with a tax preparer, you’ll need to be available to answer any question they’ve got or to clarify anything that they’re unsure about. Simply handing them your paperwork and disappearing leaves you open to the risk of mistakes. Be available to answer any questions they have. Review the work as you go, and remember that although you may be paying someone else to do the paperwork for you, ultimately, your taxes are your responsibility.
3. Be Aware of Change
The world of business is constantly changing; after all, the goal of most companies is to grow and expand. If you’re lucky enough to have found success, it’s important to make sure you’re aware of any possible changes to your taxes this year.
For example, tax structures differ according to whichever state you’re operating in. Taxes in Alberta are very different to taxes in Newfoundland, for example. (Alberta has the lowest corporate taxes among the provinces). If you’ve got the flexibility, it may motivate you to move your business to one of the lower taxing provinces. But if you do, make sure to tell your accountant! Your move will require entirely new tax paperwork.
In that same vein, if you’re merely expanding- for instance, you’ve got a new business center in a new province, or you’ve hired employees from the neighboring province, then your taxes will most definitely change. You need to ensure that you’ve got all your bases covered, especially if that means you’ll be filing in multiple provinces. If you’re based in a high tax province, be aware of the taxes you’ll owe, pay on time, and avoid getting hit with penalties.
Change also comes from above. Over the last year, major small business tax changes have come into play, and it’s your job to be aware of them all. Though the information itself can be dry, there are a multitude of easy-to-read books that can present you all the material in a concise and simple fashion.
4. Learn to Love the T4A
First off, what is a T4A? In short, the T4A Canadian tax information slip is a Statement of Pension, Retirement, Annuity, and Other Income. The deadline for you to give this to your employees is the last day of February. This is where your organization comes in handy. Get your paperwork out by the deadline, or face some pretty severe penalties by the CRA.
5. Don’t Let It Overwhelm You
We know, this all sounds like a lot. In many cases, the sheer volume of paperwork can seem to be too much. It’s essential that you don’t let it overwhelm you. If you’re really struggling, get yourself an accountant. For most businesses, this is the route they take. You just need to make sure you’re as available as possible so you two can work together. Just remember: when in doubt, ask your tax preparer. It’s much better to ask a thousand seemingly silly questions than to have to fix a mess from a problem you weren’t sure about.
6. Pay Your Taxes Online
The era of paying taxes via snail mail is past- the Canadian government has created an abundance of options for you to pay your taxes using the internet. It’s safer, more secure, and much faster than doing it the old-fashioned way. Here are the different ways you can do it:
- Online banking – Add the Canada Revenue Agency (CRA) as a payee, and then add your account number (be careful to ensure its correct- you don’t want to pay the wrong taxes!).
- Interac online – There is a My Payment service that you can use if you bank with certain financial institutions. Check your accounts, see if you qualify, and set it up for easy remittances to the government.
- Directly from your bank account using pre-authorized debit – If you want to pay in installments, or make sure you’ve got it all sorted out in advance, then you can schedule to have automatic payments withdrawn on specific dates. This gives you the peace of mind that comes from knowing your payments are taken care of- just make sure to do it at least five business days in advance.
- Third-party service providers – It’s possible to use a third party provider to make payments. They’ll take all your details and send your remittance directly to the CRA for you.
So there you have it. Taxes will never be fun, that much is true. But if you follow these six simple tips, you can make sure your tax season is as pleasant as possible.
- Remember, keep yourself organized. Make sure your balance sheets are balanced, your receipts are in order, and your paperwork is up to date. This will make life for you (or your accountant) much easier.
- Give yourself time to get everything ready. It’s never too early to get started. Once you’ve got all the necessary information, get to work!
- Keep yourself aware of any changes within the tax system. Similarly, make sure that if you’ve expanded or moved to a different province, you’ve got the proper paperwork for each one.
- And love the T4A. Learn it, send it to all your employees, (who are freelancers or independent contractors) and get everything out by the deadline. It’ll make your life much easier.
- Don’t be afraid. If in doubt, get help. You don’t have to work through this alone. Tax preparers are specially trained to handle the bramble that is Canadian tax code, and they’ll do their best to make sure you’re getting everything you deserve. Keep yourself together, be willing to work hard, and take a deep breath. You’ve got this.
- Finally, use the various different online payment systems to make paying your taxes quick and easy. The CRA wants your money and you want to avoid penalties- so do it! The future is online. Embrace it.
Have a good tax season!
About Gerald Hunt:
After graduating from the University of Calgary with a Bachelor of Science degree in Computer Science, Gerald joined KPMG (Formerly Thorne Riddell) as a Computer Accounting Customer Service representative. In this position, Gerald installed accounting systems in over 200 different small to medium-sized companies over a 6-year span. In 1989, Gerald left KPMG to continue to work with small business clients in his own corporation installing computer accounting systems. While in this role, he was engaged by the DeVry Institute of Technology in Calgary to teach various courses. In time, Gerald moved up through the ranks of DeVry until he attained the position of Director of Finance for the Calgary Campus. He also acquired his Masters of Business Administration from City University of Seattle, Washington in 2001. Gerald’s career has always been focused on small business, accounting, and education. He is currently the operator of Padgett Business Services, in Calgary, Alberta.