The Ins And Outs Of Business Taxes

The words taxes and revenue authorities are enough to get anyone’s heart racing. If you want to send someone in a panic-induced frenzy, tell them they are going to be audited. 

While some statistics may mention that only people earning over $200,000 or more are likely to be audited, random audits are carried out. It is also interesting to note that the CRA can audit you as far back as four years from the date of your current tax assessment. 

By making sure everything is in the right place, and you are following all the rules and regulations, you significantly reduce your chances of ever being audited. Here are some crucial points to keep in mind, to avoid raising any red flags and having to incur any unnecessary penalties. 

Good Manners Go a Very Long Way

Before touching on the helpful hints, it is essential to mention that like many things in life, a little courtesy goes a long way. Regardless of whomever you are dealing with, being polite and courteous stands you in good stead, most of the time. 

This applies especially when you are dealing with people of authority. Government officials, state enterprises, and similar organizations serve a purpose. Their functions are to maintain peace, order, and ensure that infrastructure is both operational and functional. 

Be Consistent

Each year, the CRA will assess your tax returns to ensure that there is a level of consistency. Anything unusually different from previous years is sure to raise awareness. This applies to you both as an individual and especially if you are a small business owner or self-employed.

Ensure You Report All Your Income

Without fail, the CRA checks and compares all T-slips they receive against the individual tax returns they receive. Keep in mind, each time your employer gives you a T-slip they keep one for themselves and a copy also goes to the CRA. 

The CRA can and will reconcile all remuneration paid out to employers for the relevant tax period. Failure to report any income can result in penalties being incurred.

Furthermore, the CRA can dig deeper and analyze your lifestyle. If you are reporting an average income each year but living a lavish lifestyle, this may be a reason for the CRA to request further information about your level of income.

Double Check Your Math

You may think that using a calculator will make things come out right every time. But, we still make mistakes when we input numbers from time to time. We recommend to double and even triple-check your numbers.

The more accurate you are regarding this, then, the less likely you are to have any issues. You also need to make sure that you use the exact numbers. People start to get suspicious when they see a lot of numbers ending in 10s, 20s, and so on. So be sure to put $4.76 instead of $4.80.

Be Transparent

In line with ensuring that you report all income received for the tax period, ensure that you retain all logbooks, receipts, and schedules. In case the CRA requires any additional information to justify or accompany your tax return, you should have all of this information ready to hand over.

If for some reason you require additional time to get the necessary documentation together, politely request an extension so that you can gather the documentation.

Be Realistic And Honest

Some small business owners may decide to claim unrealistic expenses or deduct more significant amounts for home-based office space than is necessary. 

While you may get away with it, it is a dangerous gamble to take. Instead, be honest, report actual amounts, and state realistic costs when it comes to expenses for the business. 

Travel Expenses

In line with reasonable expenses, travel expenses should be treated in the same manner. You cannot go on holiday to an exotic destination, set up one business meeting for the duration of your holiday, and then claim a business travel expense. 

Writing off the cost of a vehicle to your business when you don’t use the car exclusively for business purposes is also a reason for the CRA to become suspicious.

Common Mistakes That People Make

Errors on your tax return, even tiny errors, can prolong the process significantly. Take your time to ensure that all of the information is correct and accurate. Check your maths to ensure you have calculated correctly. 

Make sure you know which line items you can include. Certain things like textbooks and education can be claimed, but there are specific rules that apply. If you are in doubt, contact a tax professional who can help you to make sure you complete your return correctly. 

There are companies around that offer good service tax help that can ensure that you report all of your income and expenses accurately. Ensure you don’t have the CRA knocking at your door and seeking clarification on the information that you have indicated. 

In case you need to prepare for an audit, teams of professionals can assist you every step of the way. Also, learn how to avoid future penalties and how to minimize errors in your tax reporting.

Knowing the tax laws and requirements in different states can be a daunting task, and you can’t be expected to know it all. Enlist the help of a professional organization and allow them to lighten the load for you. 

Conclusion

When you can provide all of the information that the CRA request from you, it makes the process flow a lot smoother and in most cases, quicker. 

Keeping accurate records and logbooks may seem like a tedious exercise, and may take a lot of time to manage. But in the long term, having all of these on hand and up to date can save you a lot of time, energy, and even money in the long run. 

And, always remember that honesty is the best policy.

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