As a self-employed small business owner, you’re busy tackling the day-to-day of running a business—often solo, too. This year, you not only have to file your year-end tax return for the first time or among a million other tasks. You’re also doing it during a pandemic, and that in itself brings unforeseen challenges.
After all, the pandemic adds new complexities and challenges to the year-end tax provision.
Whether it’s your first time filing or the 50th time, we’ve summed up a few tips to get you prepped and confident when filing your tax return this year.
Split up into 3 stages: before, during, and after-tax season—we’ve got tips to help you feel confident.
⬅️ PRIOR: Preparing for Your Tax Return
Separate personal and business accounts
The first thing you should do as a small business owner is to separate your personal and business bank accounts.
Why? Well, let’s say you’re out making a shopping run, but you end up buying a new monitor to replace the broken one in your home office. In the heat of the moment, you’re probably not going to pull out one credit card for fruits and milk and another for your monitor, right? But maybe you should.
Mixing personal and business finances can lead to missed deductions—and realizing it when you prepare your tax return is a little too late. By not separating your payment that day, you’re essentially overlooking a legitimate business expense that you could claim as a business deduction. Either way, it’s a good idea to keep these two separate.
Keep consistent records throughout the year
Decluttered office, decluttered mind, right? This rings true for your financial records—especially when it comes time to file your tax return.
Consistent records aren’t an after-thought or something you start when you see tax season looming on the horizon. It’s something that you do all year long, consistently.
Leveraging accounting like Kashoo can help you track all facets of your small business, including:
- small business expenses (including receipts)
- invoices and payments
- client information
By using a simple, all-in-one solution to cover the full spectrum of your business finances, you’ll know, come tax return time, that your data is not only up-to-date, but you can be confident knowing your tax filing will be seamless. Whether it’s remotely working with your trusted accountant or filing your tax return on your own—you’ll know that all angles of your business taxes are accounted for. With Kashoo, you also have the ability to export income statements and other reports that can come in handy when you file your taxes.
Get prepped before meeting your accountant
Communicating and sharing documentation with your accountant looks different this year. Before you file your tax return, be sure to plan out key questions, prompts, and documents before you meet your accountant. Thankfully, video conference tools like Zoom make it incredibly easy to get your point across, as well as share information. You can share your screen to show your accountant documents. But better yet, you can also give access to your accounting software to your accountant so that they can audit your financial data before you file your tax return.
Here’s how to manage users in Kashoo, where you can manage permissions for your accountant.
Questions or prompts to prepare include:
- How should I better prepare for tax season this year?
- What records should I keep? If you’re already keeping records, be sure to get them ready to share with your accountant
- What business expenses can I deduct? If you’re already managing expenses, you can share these transactions and their corresponding receipts
- Do you have any tips on how I can better manage my cash flow?
- Are there any areas in my business where I can reduce my taxes?
Documentations that you might need beforehand are:
- Access to your accounting software (if you have one)
- Your income statement
⬇️ DURING: Tips When Filing Your Tax Return
Not staying on top of deadlines
It might sound like a no-brainer, but some people just aren’t good with deadlines. It might be a combination of not using a task app or calendar, or simply having too many things on-the-go. Whatever that might be, filing your tax return is one deadline that you absolutely must stay on top of.
That’s because filing a late tax return can give you unwanted attention from the CRA or IRS, which is the stark contrast from ideal. Apart from this, you’re also missing out on benefits for filing on time. These include:
- Financial Benefits. By not filing a tax return, you’re losing out on some major financial benefits, such as the GST/HST tax credit and the Child Tax Benefit programs—both of which are based on your declared net income.
- Registered Retirement Savings Plan (RRSP). Many individuals are contributing to their retirement, but did you know that your tax return creates the contribution room in your RRSP?
- Late Penalties. If you tend to forget to file your tax return (or file it late) you will have to pay late-filing penalties, which means more dollars out of your pocket. You’ll also want to get a head start from the actual deadline since the CRA starts charging interest on taxes owed after April 30.
Flag it on your calendar, stick a post-it note on your fridge—whatever might help you remember, do it!
Forgetting to give credit where credit is due
As a small business owner, you’re eligible to claim tax credits for GST/HST paid on goods and services used in making taxable and zero-rated supplies. If you currently run a small business or are self-employed in any capacity, you can also claim:
- Canada Pension Plan. Did you know that you can claim CPP contribution payable on your income? The CPP provides contributors and their families partial replacement of earnings in the case of retirement, disability, or death.
- Investment Tax Credits. ITCs help to reduce the amount of tax you have to pay—dependent on whether your business is a corporation, sole proprietorship, or partnership. Looking to claim ITCs? Simply complete Form T2038 (IND): Investment Tax Credit (individuals) and then claim the appropriate amount on Line 412 of your T1 Income Tax Form.
➡️ POST: What to Do Post Filing
Reflection is key
Reflection, at its core, is about careful thought. It’s about pausing even amidst the chaos to observe and sort through your observations and experiences in order to create meaning. While filing your tax return isn’t exactly “chaos,” it sure does feel like it sometimes, doesn’t it?
There’s research to back up this claim. According to research completed by Giada Di Stefano, Francesca Gino, Gary Pisano, and Bradley Staats in call centers, employees who spent 15 minutes at the end of the day reflecting on lessons learned performed 23% better after 10 days than those who did not reflect.
Just like employees in the workplace can outperform their peers, so can small business owners, who want to observe their approach and take their learnings from this year’s tax season—and improve on them for next year.
Not quite sure where to start?
Here are just a few ideas and prompts you can use as part of your post-tax season reflection.
- Did tax season this year go as smoothly as it could have?
- Did the pandemic affect my tax filing process this year? If yes, what steps did I take to rectify the challenges?
- What tools did I use this year (both during prep and during tax season) that improved this process? Can I continue using it?
- Were my clients satisfied with my product(s) and/or service(s) this year? How can I improve for next year?
- What does my current financial and tax situation look like?
- How are my retirement plans looking? What should I do differently next year?
Follow these steps to feel confident
It’s true, tax season can be a stressful time, especially if you’re new to running your own business or have little financial background. Add a pandemic to the mix, and it’s definitely not an easy feat.
Luckily, with remote work also comes the plethora of digital tools that you can leverage to feel confident about your tax return this year, and every year after that. By using the above tips for pre, during, and post-tax season, we hope that you can enter every tax season with the confidence that you want and deserve!
The key to tackling all of the above tips before, during, and after tax season is a tool that you can trust to house your data, track and store important tax documents, and get prepped for tax season each year. Kashoo’s accounting solution can provide small businesses just that! Try out our free trial today to get ready for filing your tax return this year.