Often times during a small business start-up, the last thing thought about or taken care of is dealing with taxes. This is a huge mistake that must be avoided at all costs. Thinking about the various types of taxes that have to be dealt with when starting a new business should be a priority. In order to keep Canada Revenue Agency (CRA) and other taxing agencies happy proper record keeping is a must. Proper planning in the beginning stages of a new business will make doing taxes much easier when the time comes.
Here are a few simple tips to assist in keeping proper and adequate records.
Any time a purchase is made, it is critical that the receipt is kept and filed in a safe place like a locking file cabinet or at a minimum a file box. If ever audited by CRA, it is essential that all receipts are made available, as they will most certainly request receipts to verify specific purchases. Proof of expenses must be provided to CRA or they will disallow them as an expense and add that amount back into the income category.
Another area that tends to suffer in the small business community, is not keeping business financial books current. Falling behind with bookkeeping is not only frustrating but takes much more time to sort out when trying to catch up. To remedy this, write down all income and expenses as they happen, preferably on at least a daily basis. Organization is an integral part of successful business ownership, and organized books are not only essential in keeping CRA happy, but in helping track the performance of a business.
More and more the government, including CRA, is accepting electronic records. Let’s face it, most receipts are printed on thermal paper now, which degrades over time or even be destroyed. Scanning your receipts and keeping the original with the scan is a great way to ensure you always have your records.
Regardless of the type of tax that may need to be paid (income tax, payroll tax, state tax, etc.), it is critical that the filing of the proper forms is done on a timely basis. Late filing and late payment of taxes will result in paying hefty penalties and interest on the balance owed to the various taxing agencies.
Audits by CRA or other taxing agencies do not have to be feared, as long as the proper documentation is in order. Again, the more organized the records are, the easier it will be to prove and make a case to improve the businesses position. Statistically small businesses and small business owners are audited more often by CRA.
In closing, any existing small business or brand new start-up can see that proper record keeping should be a priority. The hiring of a professional bookkeeper and/or accountant to assist in setting up and maintaining the books is a highly beneficial option that should be seriously considered.
Tips for Pivoting your Business During Covid-19
Will Covid-19 Relief Measures Affect my Taxes?
How to Close your GST Account with the CRA
What are the Penalties for Filing a Late GST/HST Return?
When can you Expect your Tax Refund this year?
Are you one of the Almost 50% of Canadians Taking Advantage of the Tax Deadline Extension?
The CRA has $1billion in Uncashed Cheques
Thinking About a Business Partnership in Canada?