Posted on: 17 July 2015Share
As a Canadian small business owner, there's a lot of information that you need to track regarding your day-to-day income and expenses. One might think that this would actually make it easier to file your taxes at the end of the year, but there are still some fairly common issues that business owners run into. Though taxes may be hard, a tax accountant can always help.
1. Switching Back and Forth from Cash to Accrual
Many businesses operate on an accrual-based model, and that means that you report income when you "make" it rather than when you receive it. In other words, when you invoice a client, you would report that invoice amount as income, even if you haven't collected that amount as cash in bank. The cash-based model means that you report income only when it's collected, not when it's billed. Whichever model you select, you need to remain consistent. If you switch back and forth, there will be money unaccounted for in the gaps. A tax accountant can help you standardize your bookkeeping.
2. Not Reporting Their Cash Payments and Income
It's very easy to lose track of cash payments, even if you are genuinely trying to report your taxes accurately. When this becomes habitual, your tax return can be significantly off. This could be revealed during an audit, as there will be cash going into your bank account that was not booked. It's always best to book cash as soon as it comes in and to avoid making payments in cash unless absolutely necessary. You can send receipts directly to your accountant to make sure that everything is booked and not repeated.
3. Forgetting to Depreciate Their Assets
Any substantial physical item in your business is considered to be an asset, including cars, property, and office equipment like copy machines and more advanced printers. All of these need to be depreciated according to their age. Depreciating your assets can knock a significant chunk off your return depending on how many assets you have. Not only can an accountant do this for you, but they also know exactly how much to depreciate each type of item.
4. Ignoring Prior Year and Next Year Adjustments
There are certain ways that you can either carry back or carry forward losses so that you don't need to pay as much in taxes. If you're carrying back, you usually need to resubmit prior year returns. If you're carrying forward, you need to make sure that your next year's return reflects your adjustments. Many business owners don't do carry backs or carry forwards because it's confusing -- but a professional tax accountant can help.
Most of these issues can be sidestepped by having a bookkeeper and tax accountant review your documents before you send them in. And if you do make a mistake, don't fret -- mistakes can be resolved by simply sending in additional form and by paying any difference required.