As a small business owner, your mind is constantly occupied with business-critical concerns, as it should be. But if you’re acting as your own bookkeeper, you have to remain diligent, make sure you’re keeping your books current and filing your taxes correctly and on time.
It’s a good idea to consult a certified business accountant at least once or twice a year to check over your books, ensure that you’re not losing out on tax credits and for a financial health report on your business.
If you are filing your own taxes this year, read the information below. These are common mistakes small business owners routinely make that can land you in hot water with the CRA if you commit the same ones.
Not Completing the Right Forms
As a sole proprietor or a partner, you are required to complete a T2125 tax form to report all of your business and/or self-employment income and include it with your personal tax return. You must use the income or loss as your personal income or loss, in addition to any other sources of income (or losses) that you have.
Many small business owners use the wrong form or an outdated one. This CRA webpage contains all tax packages for every year, going back to 1985 and will have the current tax package.
Failing to Register for a GST/HST Account
If you meet the threshold for earnings in a business year, you are required to register for a GST/HST account and start collecting GST/HST on all of your sales. If you fail to do so, you run the risk of having the CRA calculate how much they believe you owe and demanding payment.
Not Filing a Return in a Year the Business Experienced a Loss
Many small business owners who lost money in a tax period feel they don’t have to report because of the loss. However, if your business loses money, you are eligible for tax breaks and financial support, including:
- GST/HST credit
- Canada Child Benefit
- Provincial tax benefits and several other credits and benefits
- An increase in your RRSP contribution amount
If your business is a partnership or sole proprietorship, reporting the business loss on your personal return reduces your taxable income as well.
Not Filing a Business Return
With the evolution in the job market, many Ontarians became self-employed service providers almost overnight and, as such, didn’t think of having to report business income on their taxes. Drivers for ridesharing apps, drop shippers, social media influencers, and others fall into this category. The CRA requires us to report all sources of income, and not doing so or not filing at all could get you flagged by their software.
Losing Documentation
Keeping all your financial records, like invoices, receipts and bills, organized and secured doesn’t just help you run a more streamlined business; it also protects you from claims by the CRA or GST/HST that you reported false or misleading numbers. If you’re audited, and you don’t have the paperwork to back you up, you’re essentially at the mercy of the auditor and any accusations they make.