A small business owner’s biggest challenge is preparing taxes. After all, you’re an expert in your industry, not tax law, and taxes are complicated. Everywhere you look, there are potential landmines and obstacles. What happens if you categorize your employees incorrectly? Is it possible to lose money by miscalculating your beginning expenses? Do you know how to get the most out of your medical reimbursement plan?
To optimize your tax savings and ensure a full percentage of financial correctness, it’s recommended to engage with an expert. However, if you’re a savvy business owner trying to master the ropes of small business tax preparation, Peal Accounting & Taxation Services Inc. has listed down common mistakes people make on their taxes that you need to look out for.
1. Not knowing the difference in the sales reported in the corporate return and HST returns
They presume that the total money received from their customers or clients is attributable to sales forgetting that it includes the HST as well. This is quite common with small businesses that maintain incomplete records. This results in over or under-reporting, which may be the cause of miscalculation of taxes resulting in an audit by CRA. To avoid this, they should hire a bookkeeper or data entry clerk using some user-friendly accounting software.
2. Forgetting to retain the receipts properly
Any expenses should be backed by a proper receipt that can vouch for the transaction. Accounting activities should be taken seriously and not viewed as optional.
3. Mixing personal and business expenses
Small and medium-sized business owners have to understand that they are different from the business for all accounting purposes. There should not be an overlap between their personal use of funds and funds usage for business. They should draw a regular amount at regular intervals from the business for their personal use, which is a far cry from the real situation.
4. Keeping poor business and personal records
Small business owners continue to do a reasonable percentage of their business in cash. This cannot be accounted for, resulting in the business person not being aware of where, how, and by how much the losses are accumulating. Business accounts should not be considered as an extension of personal accounts.
5. Not using accrual methods of accounting
CRA requires all businesses to maintain accounts using the accruals basis and not the cash basis. However, most small businesses use a cash basis rather than an accrual basis. As a result, businesses are unable to understand the fluctuations in their businesses. They also do not take remedial measures to avoid repeating those mistakes or taking advantage of similar situations in the future.
6. Failing to maintain proper logs
Recording expenses should be exact, but most people record expenses and sometimes even incomes in approximate round figures. In most cases, there are no proper logs of activities, which is mostly an approximation. Because of these anomalies, if and when there is an audit, the businessmen have to face penalties that could have been avoided by an accurate recording of business activities. In spite of accounting being extremely critical, it fails to gain the proper recognition of businessmen. As a result, they consider accounting an unnecessary activity with no real benefit to business people.
To avoid these and other mistakes, reach out to the experts at Peal Accounting & Taxation Services Inc. We are a Mississauga accounting, bookkeeping, payroll, and tax service provider specializing in comprehensive solutions for small and medium-sized businesses across Ontario.
Our board of directors has over thirty years of experience in the private, philanthropic, and not-for-profit industries in accounting and financial consulting. We aim to maximize corporate savings and efficiencies by building processes and systems that are tailored to fit our client’s individual demands.
We serve clients across Mississauga, Markham, Vaughan, Brampton, Hamilton, Toronto, Ajax, Whitby, Oshawa, and surrounding areas.
For a complete list of our services, please click here. If you have questions about accounting and taxation, we’d love to hear from you. Please contact us here.
