Common Mistakes Small Businesses Make On Their Tax Returns
Small businesses are taking the globe by storm as people are increasingly opting to work for themselves and build their own legacy. As the business grows, the pains of growing also pile up and many small business owners tend to make several mistakes – especially when it comes to their tex returns. If you are a small business owner or are in the process of starting your own business, it is imperative to avoid the hassle of tax returns and do yourself and your business a huge favor.
Several business owners are unaware of what tax deductions they can claim or how essential it is not to mix their personal and business finances. Most small business owners don't have time to keep track of all the guidelines, rules and CRA regulations. Therefore, at times they end up making mistakes that end up costing them precious time and money during their tax return. To ensure you make the best decision for yourself, VanEykeren Accounting Services has got your back! Read on to know the most common mistakes small businesses make on their tax return.
1. Not tracking financials monthly throughout the year
Setting up proper tax structures and following the necessary information – those are the things that should be happening during the year instead of waiting until tax time to track it all. Many people scramble to generate this information at year-end and end up missing expenses they could have claimed. Business owners need to evaluate their books monthly or quarterly to ensure you are understanding your yearly earnings position, your critical revenue and expense trends, and that you are putting enough away for tax time.
2. Meals and entertainment
Especially troublesome are meal expenses that have been paid in cash or with a personal credit card. Writing the name of the customer and other important details on the back of the receipt helps. Ideally, business owners should be using separate credit card accounts. Many of those who commingle personal and business expenses do not realize that in Canada, the responsibility lies with the business owner to prove that the transactions are justified business expenses.
3. Business use of vehicles
Tracking business kilometers is essential; maintaining a mileage log is recommended. A mileage log is good evidence if Canada Revenue Agency ever audits your books. The Mileage log also gives your tax preparer the information required to claim portions of any car maintenance, car repair, fuel, and insurance expenses you are claiming as a business expense.
4. Mixing up home and office expenses
These are not commonly thought of as typical business expenses; however, you should keeping your utility bills and maintenance and repair bills, in addition to property tax and mortgage interest is a useful habit. Having said that, small-business owners using a home office need to tread with caution, too. If you are spending on renovating the space, not just repairing it, that qualifies as a capital expenditure, not a deductible expense. The Income Tax Act does not give firm, hard rules and explanations for all of this, but some overriding principles exist. Did you incur the cost to earn income? And is it reasonable under the circumstances? It is important to note that extensive maintenance in the backyard, if it is not related to your home office, may not be eligible. But maintenance in your front yard may be reasonable, particularly if you have clients regularly coming to your home office. To claim expenses for your home office, you will need to provide your tax preparer with the total sqft of your home and the sqft used for business.
To avoid these and other mistakes small businesses make on their tax return, reach out to VanEykeren Accounting Services - Accountant/ Tax Preparer in Stockdale, Ontario. We are a small business located in Stockdale, in the heart of Quinte West. We are a registered Ontario business and have been in operation since February 2018. We are certified by the Canadian Revenue Agency to prepare and file both individual and corporate taxes. We are looking to help individuals and other businesses, small and large, with their bookkeeping and accounting needs.
We serve clients across Stockdale, Quinte West, Frankford, Prince Edward County, Norwood, Belleville, Madoc, Stirling, Brighton, Colborne, Cobourg, Picton, Bloomfield, Greater Napanee, Shannonville, Deseronto, Wooler, Tweed, Marmora, and the surrounding areas.
For a complete list of our tax services, please click here. If you have any questions regarding your tax return, we'd love to hear from you. Please contact us here.