Tax season as a small business ownerSubmitted by Agrawal Associates on April 23rd, 2018
April 23, 2018
Retirement doesn’t always mean the end of working for everyone. For some people, the 40-hour work week may have shifted to a more casual format like a home office. There are many individuals who are diving into small business ownership as part of their retirement plan.
While tax season may seem a bit more daunting with the small business elements to consider, there are ways to stay organized and make income tax filing no more complicated than it was before you started on your entrepreneurial journey.
David MacNicol, CPA, CA, offers tax recommendations for small business owners.
1. Stay on top of tax season, all year round.
While taxes need to be filed once a year, it’s a significantly less daunting task if you are consistently organized. MacNicol recommends keeping invoices and receipts organized monthly at the very least. “And for those who are more technologically inclined, there are lots of great apps available that can scan invoices, scan receipts, track your banking, and even track mileage for your vehicle.”
2. Don’t miss out on cost savings.
There are many areas you can write off against your business, but the key is to track everything. When it comes to meals and entertainment, for example, make a note on the receipt of the client you met with and what was discussed. Maintain a vehicle log for business travel, including who you visited and the distance traveled. If your home is your primary place of business, a portion of your home — utilities, mortgage interest, property taxes — can be deducted against your business income.
3. Keep your claim reasonable.
It’s tempting to write-off every meal and coffee you enjoy on a weekly basis, but that’s a slippery slope to explain if the CRA comes calling. Use smart discretion. Is the expense related to your business and reasonable to claim in the context in which it’s being incurred? Having lunch with a client is a business-related expense. Chatting about your business with your spouse over supper likely wouldn’t qualify.
4. It doesn’t need to be complicated.
If you’re just getting started as a small business owner, the accounting process can seem quite daunting — it doesn’t have to be. MacNicol reminds us there doesn’t need to be a complex accounting system when a simple ledger book would do the trick. “Keep it organized. Track all of your expenses, all of your revenue, and provide documentation for the nature of your business activities.”
The tax deadline for self-employed individuals to file their personal income tax return is June 15, 2018; however, any balance owing must be paid by April 30, 2018.
Disclaimer: This material has been prepared for informational purposes only and should not be relied on as tax or accounting advice. Specialized professional advice should be sought for specific cases. Views of guest writers may not be shared by Investors Group.