Preparing income tax returns as a small business can be challenging. Tax laws change continuously, and keeping up with all of these filing requirements can be daunting for the busy business owner. In order to prevent tax-related problems, it is best to entrust your taxes to an experienced company like Jerome & Co. Here are some of the mistakes we can help you avoid.
1: Not choosing the right structure.
When you start your business, you can choose to structure it as a corporation, a sole proprietorship or a partnership, depending on the circumstances. The structure you choose can have a significant impact on the amount of taxes you pay. For new business start-ups, our team can help you select the structure that is best for your needs and goals. For existing businesses, an experienced tax preparer can advise and help you to change your business entity for future tax filings.
2: Mixing your business and personal expenses.
Using the same accounts to pay both business and personal expenses can result in an accounting nightmare. When tax time arrives, it can be very difficult to determine which of these expenses are deductible and which are not. Furthermore, if you deduct personal expenses on your income tax return, you may be subject to penalties from the CRA, even if the deduction was an accident. Conversely, you can miss out on legitimate business deductions that would have saved you money. If you have already mixed business and personal expenses, we can help you sift through them in order to determine which are deductible. We can also help you separate future expenses to prevent this problem during subsequent tax years.
3: Deducting start-up costs incorrectly.
The CRA does not allow new businesses to deduct all of your start-up costs in the year that you open your business. Some of your pre-opening expenses are eligible for deduction at the time you open for business but others will need to be amortized. The rules can be confusing, but the professionals at Jerome & Co. will help you understand and apply them properly.
4: Not applying deduction limitations appropriately.
The CRA limits the amount of certain expenses, such as entertainment costs, automobile expenses & meal allowances that you can deduct from your taxable income. If you fail to follow these rules, you may be subject to additional taxation and/or penalties in the event of an audit. Having a professional tax preparer prevents you from making these common mistakes.
5: Classifying workers incorrectly.
Individuals who receive payments from your company may be classified as employees or independent contractors. Classifying employees incorrectly can lead to a variety of problems, including significant tax penalties. We can help you classify each worker appropriately to avoid problems. There are also forms that must be filed in a timely manner or penalties may still apply.
6: Missing the filing deadline.
In some cases, small businesses may put off filing their tax returns because they don’t have the money available to pay the bill or because they simply don’t have time to file. Unfortunately, if you don’t file on time, you will owe a failure-to-file penalty that will continue to grow until you file the return. With Jerome & Co. we will work closely with you to help you meet your tax filing deadlines. Even if you do not have the funds to pay your taxes, an experienced tax preparer can still help you to file on time & avoid costly penalties.
7: Paying tax bills late.
When you fail to pay your taxes on time, you may be subject to significant interest. Jerome & Co can work with you throughout the year to help properly plan for your tax obligations and make sure you are aware of all payment options.
8: Using an unqualified accountant or tax preparer.
Never agree to work with any tax preparer who is not properly qualified; is inexperienced with small business; or works seasonally and is unavailable year-round. At Jerome & Co, we specialize in working with small business owners and we will be here whenever you need us – no matter the time of year.