Home business owners can easily prepare their own tax return but many choose to have it done by someone else. They find it easier that way; besides, many home business owners in Canada and the United States think that their country’s income tax laws are complicated and so they prefer not to mess with them. In fact, you have a much higher chance of being audited if you file your own small business income taxes.
Who Can Help in the Tax Preparation and Filing?
When preparing and filing their income tax returns, taxpayers often seek the services of professionals such as attorneys, certified public accountants, tax preparers, or enrolled agents. Alternatively, they can use tax preparation software and online services. Using professional tax preparation services or paid preparers, however, is not entirely foolproof. Not only are their fees expensive but also you, the taxpayer, remain responsible for all the content of your tax return including errors, if there are any. You are liable for any deficiency, interest, and penalties that may result because of erroneous items in your return. For this reason, it is important that you review your tax return for accuracy before signing it.
Other than the honest mistakes, what you will also need to watch out for are the unscrupulous tax preparers. Their fraudulent practices can cause you grave legal and financial problems even if you are not aware of them. Such practices include manipulation of income figures, inflating personal or business expenses, claiming bogus deductions or unallowable credits, and overstating exemptions that allow them to prepare and file falsified tax returns in behalf of their clients.
How to Choose a Tax Preparer
Choose a tax professional who is experienced, honest and reputable. Ask questions about the length of his experience and any training in tax laws that he may have received. Ask people that you know who have used the services of the preparer. Find out if they were satisfied with the kind of service they received.
Choose the preparer who would most likely be available to answer questions about the preparation of your tax return in case of audit. Do remember that tax professionals must sign your tax return and provide you with a copy for your records. Beware of the preparer who does not want to sign your tax form. On your part, never sign a blank tax form and neither should you sign in pencil.
Avoid tax preparers who guarantee a refund or promise larger refunds than anyone else. Only the CRA, after reviewing your return, can determine if you are entitled to a refund. Also, if they prepare your tax return properly, the resulting figures will be similar to what other preparers can get. You may also want to consider the tax professional who can offer you electronic filing or other payment options you may choose.
Make sure to discuss the fees before you allow the tax preparer to work on your return. Fees are usually based on the complexity of your tax return. It follows that you will have to pay a higher fee if your return is complicated or if the tax preparer will need to spend longer hours in its preparation, such as going over a significant number of claims and supporting documents that still need to be sorted out. Avoid a preparer whose fee is based on the amount of refund you are expected to receive.
Keep in mind that your tax return does not have to be prepared by a tax professional. You can request a knowledgeable friend or relative to help you out. Or, you can even make use of the free tax preparation services that are available nationwide, for basic returns only. Check the free programs of the CRA and its industry partners.
However you prepare and file your return, the important thing is for you to file and pay your income tax. If you willfully fail to file and pay your taxes, you risk having major penalties and interest applied against any balance owing, plus the penalty can increase because you were neglectful over too many years for not filing.
Home-based Business? How to Make Your Home Client Friendly
Home-based Business? Some Ideas for Places to Meet Clients Outside Your Home
Five Common Mistakes That Small Business Owners Should Avoid
The Personal Tax Filing Deadline is April 30th – Some Last Minute Reminders
Need Help With Your Return? Where to Get Answers to Your Income Tax Questions
Should You Pay Yourself Salary or Dividends When You Incorporate Your Business?
Do You Know Why the CRA Uses a Profit Test for Business?
What is Income Splitting and How Can it Reduce Your Tax Bill?