How to Get on Track for Next Year’s Taxes
Tax season can certainly be a taxing period for many small business owners. Some find it a struggle to prepare the necessary paperwork before filing their return. Others face the challenge of understanding the finer points of the tax process, and how to get the most out of available benefits and deductions. Finally, some small business owners must deal with the financial reality of having enough money on hand to pay any balance owing.
The trick to making tax time easier is year-round preparation. If you start taking care of a few small things now and maintain your bookkeeping over the next 12 months, you won’t have as much to do come tax time next spring.
Here’s what you can do to get your small business on track for a simpler, stress-free tax season next year.
Be aware of what’s changed
Tax rules are always changing, offering small business owners different options for deductions and rebates. New programs and incentives are often part of annual government budget announcements, but can come at any time of year.
If you can’t keep up with what’s new, or want clarity on how a specific rule applies to your business, it’s best to seek the advice of a trusted tax professional. The cost of hiring someone to handle your taxes can be deducted the following year and might end up saving you money in rebates you didn’t know about.
File like a champion
Not surprisingly, strong organization is at the root of tax-season simplicity. That way, you never have to go rooting around for documents, receipts, or other important materials. Set up a file folder for everything you know you’re going to need next year, and break it into different categories so everything has a dedicated home – that way, it’s much easier to deal with later than a single big stack of tax-related documents.
If you have a reliable system in place already, stick with it. Adapt as necessary to account for any special circumstances unique to your business. Consider making a document checklist, so you can easily keep track of what you have, and what you don’t. As long as you follow some kind of filing plan, you’ll be better off in the long run, preventing panicked searches for missing pieces of paper.
Digitize tax records wherever you can
Shorten your paper trail by going digital with your tax documents. These days, much of the work required to manage your tax affairs can be done via the internet. If you haven’t done so already, set up an online account with the Canada Revenue Agency. Many other financial documents and statements can also be received and submitted electronically, which is often a big help for small business owners.
Review your past few returns, and make time for in-year reviews
Once you’ve finished this year’s tax filing, find some time to go through the past three to five years of returns and look for any trends or persistent trouble spots. Are there lessons you can learn from the past and put to use for an improved tax future?
Check in on your taxes over the year ahead to avoid unwelcome surprises. Book an hour or two every quarter to make sure your tax affairs are in order and don’t require additional attention.
Set up a schedule for putting money aside
Whether you pay tax in installments or a lump sum at the filing deadline, you don’t ever want to be digging around for funds to cover your bill. Make sure you’ve always got money on hand by regularly diverting a fixed sum or percentage of your earnings into a special account you only use for making tax payments.
Start logging work-related driving
Use your car for your small business? You can deduct expenses related to operating your vehicle, but must keep a log of all the times you drive for work, how many kilometres you travel, and total kilometres driven overall. At year’s end, you’ll be able to show how much of your total vehicle use was work-related, and get deductions on a percentage of your costs for fuel, maintenance, insurance, and, if applicable, leasing.