Nobody is ever ready for tax season, especially if you are running a small business. Whether you are a freelancer or a full time entrepreneur, this is the time of year you may feel overwhelmed with numbers and documents. Let us guide you through some simple tips to help you get organized.
- Understand your business registration If you are self-employed or a sole proprietor, your tax filings are not separate from your personal tax filings. You will need to complete the form T2125 Statement of Business or Professional Activities and add this to your personal income tax return, also called a T1. Corporations needs to complete a corporate income tax return, called a T2. This is a good time to review if you business structure still works for you.
- Take care of your books. Bookkeeping is the recording of financial transactions and is part of the accounting process in business. It is a key part in understanding your business numbers – what comes into the business and what leaves your business. The method you use doesn’t need to be anything fancy and depending on the complexity of your business, your books should be updated regularly (can be monthly or quarterly).
- Understand your deductions. Not everything is deductible. While there is a list of categories that can be considered business expenses ask yourself this – did I spend this money so I can make money? For example, you can’t expense a car if you run your business from home and never leave the house meet clients. However if you are a realtor and are constantly on the road, yes you can deduct some of your car expenses as long as they are related to client meetings and other business meetings.
- Pay your taxes in instalments instead of a lump sum. Paying your taxes in instalments throughout keeps cash flowing in your business, instead of of one expense as a lump sum when you file your taxes. Using a business line of credit to make your instalments can be an effective strategy, depending on how healthy your company’s finances are.
- File on time! Sounds simple enough but filing late can result in hefty penalties, especially from the Quebec government.
During this week’s Women & Money Montreal Tuesday session, CPA Ruchika Mogha provided us with some actionable tips as we dive into tax session. You can catch the video recap here.