Small businesses make up a large majority of companies, meaning that the majority of businesses that file tax returns are small businesses. The tax return can be a complex and daunting task for small businesses. This is because there are a lot of tax laws that businesses must comply with.
Additionally, small businesses often have different resources than larger businesses to hire accountants or tax professionals to help with their tax returns. This can lead to small businesses making mistakes on their tax return.
To help you avoid some basic errors that could prove to be costly, Peal Accounting & Taxation Services Inc. has put together a list of the most common mistakes people make on their tax returns.
1. Not maintaining a clear-cut difference between personal expenses and business expenses
Lack of knowledge and the misguided conception that it is their business and they can run it if they wish to. They should always consider the business as a different entity for themselves, record things as they happen, and safely retain all supporting documents. If they are always in a rush, they should maintain all the receipts in a shoebox and arrange them in chronological order from time to time.
2. Inadequate records and carelessness with receipts and vouchers
The reasons are varied: Some due to ignorance, some due to over-smartness; others due to the impression that bookkeeping is a waste of their time; discounting the importance of keeping records for compilation of accounts for taxation, etc. This needs to be followed strictly because, in case of an Audit by CRA, they would need documentary evidence to accept the expenses that have been considered. They think they will remember the details of the transactions, but experience proves otherwise over time. Without legitimate receipts and vouchers, CRA can disallow the expense and redo the tax returns, which may result in paying more toward taxes and penalties. If they do not record them, at least they should retain all the receipts and vouchers in some form of the filing system.
3. Giving more importance to cash basis accounting than CRA-based accrual accounting
Many times, small businesses file tax returns based on accounts prepared on cash basis accounting instead of the CRA-mandated accrual basis of accounting. The returns may be redone in this situation, and a penalty for failing to use the necessary bookkeeping method may be assessed.
4. Allowing financial transactions without levying the due HST
Small businesses, at times, engage in financial transactions without levying the expected amount of HST. This does not work in the long run, as it may not only result in paying HST but also includes the penalty.
5. Not differentiating between personal and business expenses
Sometimes, small businesses need to recognize the difference between personal and business expenses. This is a blunder, as business owners and businesses are separate identities, and the related expenses of a business owner should never be considered a part of the business expense.
6. Unethically charging home office expenses
Some small businesses take into account the home office expenses, even when a home premise has not been used for business purposes. Sometimes, a home premise may only have been used as a shared space.
To avoid these and other mistakes, reach out to the experts at Peal Accounting & Taxation Services Inc. We assist clients in understanding and managing their financial data. We offer a wide variety of accounting services, from bookkeeping to preparing and filing tax returns for our – personal, small businesses, Corporations, Non-profit organizations, etc. We offer accounting, bookkeeping, personal tax return, tax planning/preparation, payroll services, and more! We serve clients across Mississauga, Markham, Vaughan, Brampton, Hamilton, Toronto, Ajax, Whitby, Oshawa, Oakville, Burlington, Caledon, Brantford, and Barrie.
Get in touch with us today!
For a complete list of our services, please click here. If you have any questions about taxation, we’d love to hear from you. For more information, please call us at (905) 461-2160 or email us at pealtaxinc@gmail.com.
