5 Tax mistakes for small businesses to avoid

Let’s face it, tax filing is not anybody’s favorite part of running a small business. Perhaps you find accounting of any kind, quite boring or you really genuinely do not have a flair for it; however, you simply do not have a choice as you must keep appropriate records of your income and expenses for tax purposes. This is the one area where statistics show that the majority of small businesses could improve upon. So to help you get your tax-filing game together, we have put together this list of 5 simple mistakes to avoid.

#1. Not tracking expenses

This is probably the single most common mistake made by the majority of small businesses out there. Most people who do not know a lot about accounting do not realize that expenses are deductible from taxable amounts, which means that the higher your expenses, the less tax you will have to pay. The catch though, is that you will need to maintain all receipts as evidence of these expenses, along with detailed explanations for why these costs were incurred. Every single expense properly kept record of, could help reduce your tax exposure. So take note.

#2. Shoebox record keeping

With a lot of small businesses, there is the tendency to keep all important documents in one place because it seems much easier to have only one place to have to go to look for stuff. However, when the taxman comes calling, having to sift through months of documents to track down receipts and other supporting documents will probably be quite tedious. You should invest in a modern record keeping system instead.

#3. Forgetting to write-off your major assets

Certain assets that must be used for business purposes such as your home if you operate a home-office or your car if you drive it to work or use it for making deliveries. You will have to calculate the portion of these assets that are dedicated for business purposes and this amount will be eligible for deduction.

#4. Combining business and personal accounts

Although this is a requirement for companies, not for sole proprietorships, it is still a good idea to keep your business and personal accounts separate if you run the latter. The reason is simple: in the event of an audit by the CRA, you will probably not be able to provide suitably detailed explanations for all the money in your account, if you combine personal and business revenue, and will be expose to higher taxes.

#5. Exaggerating expenses

The CRS will be on the lookout for suspicious looking figures and if found this could trigger an audit, which is something that you really do not want at all, as you could end up with even higher taxes than you ordinarily should. Your best bet is to present the most realistic figures you can.

Conclusion

These steps are really not so complicated to follow and if you do use them, they are certain to help protect you from excessive tax exposure.