Filing taxes is not a straightforward task. It is not something your accountants can do in one sitting either without the necessary information and documents available.
The Canadian Revenue Agency (CRA) has introduced digital filing systems that do a fair job of making the process easier for seasonal filers. However, it doesn’t change the fact that doing taxes is not an easy process in Canada, largely due to our comprehensive and complicated tax laws.
Let’s discuss a few business tax challenges you might face this year and how to overcome them.
Year-long Vigilant Bookkeeping
Filing taxes involves having a strong grip on the company’s cash flow and financial records, especially for form T2125, which requires you to report every business transaction. At the end of the day, it is down to your balance sheets and bookkeeping. A tax return is all about reporting the revenue and expenses of a business. Any discrepancy in the reporting results in filing errors.
CRA compares your filing against its records, and upon mismatched filing, you may be asked for an audit. This is why businesses must adopt year-longly vigilant bookkeeping to ensure all transactions are reported to the CRA. Bookkeeping is the act of documenting transactions on a day-to-day which is no easy task to do year-long and is one of the reasons why filing business taxes is challenging.
Separating Personal And Business Expenses
Keeping personal and business expenses separate is hard in small businesses, especially if operated from a house. One of the biggest complications is business travel. Without a separate vehicle for business, an entrepreneur might use a personal vehicle. Fuel expenses credited to the business are hard to track in this case.
This is important because fuel expenses are taxed differently for personal and business travel. This business tax challenge can be overcome if business owners keep separate accounts for their personal and business transactions. This ensures that all money coming in or going out of the business is recorded separately from personal spending, making filing taxes less complicated.
Classification Of Business
The Canadian government has outlined a few different classes a business can belong to. These classifications follow the North American Industry Classification System (NAICS), which groups businesses into four classes: corporation, cooperations, partnership, and sole proprietorship. The classifications are a key determinant for the taxable income of the business.
Getting your business classified requires registering it with the government and having its approval. This is a slow process, so you have to register long before forming a tax system for the business. Additionally, the process is hard, and the business has to ensure it meets the requirements to not get rejected. Business taxes are challenging because small ventures often miss out on this crucial step and end up getting taxed more.
Incorporating Tax Breaks
Taxes take up a generous percentage of business income. According to the CRA, all businesses are required to file for federal income taxes regardless of whether they made a profit.
For Ontario businesses, tax service experts in Toronto advise taking advantage of tax credits that the CRA provides on certain expenses such as donations. There are also tax incentives on investments, such as in the fuel or mining industry. Small business deductions can be accessed by start-ups and small ventures, which offer lower tax rates on their annual income tax to help the businesses grow.
Reducing the taxable income of businesses must be done to ensure you are not paying in taxes than required. Deductions are incorporated by every efficient tax filer. A tax specialist can usually help you recognize and use the relevant tax breaks to exclude the business’ tax-deductible expenses from the total income.
Complex Canadian Tax System
Apart from the above-mentioned challenges, taxes in Canada are inherently tough because of our tax laws. The current Income Tax Act is over a million words long, while our income tax codes have seen minimal reforms since the 1960s.
Filing taxes in such a system without expert accounting assistance is setting you up for failure. For businesses filing tax returns in Canada, hiring a tax accountant is a necessity.
Finding The Right Professional To Do The Job
If you’re a business owner with a registered venture in Canada, and looking for a competent professional to do your taxes, get in touch with us. We are an accounting firm that provides tax, bookkeeping, and financial business services to companies in Thornhill. Our tax services in Toronto help businesses file taxes digitally, plan for the future, and explore growth opportunities.
thanks for such a nice information about taxplanning . This article is important because sometime fuel expenses are taxed differently for personal and business travel