7 Big Mistakes Small Business Owners Make at Tax Time. Farm Business Consultants Inc. (FBC)

Transcription

1 7 Big Mistakes Small Business Owners Make at Tax Time

2 Copyright 2013 Farm Business Consultants Inc. (FBC) All rights reserved. No part of this book may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, without the prior written permission of the publisher. Disclaimer All the material contained in this book is provided for educational and informational purposes only. No responsibility can be taken for any results or outcomes resulting from the use of this material.

3 96 Years of Temporary Taxation If tax stuff interests you, check out our [Infographic] The Canadian Tax Landscape 96 Years of Temporary Taxation detailing how far we ve come since the first personal and corporate taxation occurred in Canada during World War One. For the full [Infographic], click here:

4 Preface With over 20,000 farm and owner/operator small businesses served by our 12 offices in Ontario, Manitoba, Saskatchewan, Alberta and British Columbia, we know the importance of making sure you get to keep every single penny that you re entitled to under the laws of Canada when filing your personal and corporate taxes. The correct approach to deciding which strategies to follow as well as diligence around record keeping are the two magic ingredients of any sound financial plan for family businesses. Last year, we saved $37M in taxes for FBC Members. If any of these strategies seem like they might work for you, we invite you to talk with us: or see what a membership might look like for you and your business: Remember, we come to you!

5 As a small business owner, you re busy wearing many hats. You don t have time to be a tax expert, too! Avoid these mistakes and you can master the visor: 1. Overlooking lesser known tax deductions 2. Forgetting to give credit where credit is due 3. Missing tax filing deadlines, or not filing at all 4. Commingling personal and business finances 5. Neglecting to make tax-savvy investments 6. Failing to let your family lend a helping hand 7. Ignoring government incentive programs

6 Mistake 1: Overlooking lesser known tax deductions

7 You probably know about many of the tax deductions available to your business operating costs like supplies, advertising, office rent, etc.; meal and entertainment costs (don t forget the 50% rule); and auto expenses (be sure to keep an accurate auto mileage log). Of course, if you operate your business out of your home you can deduct a portion of utilities, property taxes, house insurance, and mortgage interest. But, did you know you can write off the amortization of assets including intangible ones such as goodwill, trademarks, and some patents? What about writing off uncollectible invoices as bad debt? Don t miss out on these deductions!

8 Mistake 2: Forgetting to give credit where credit is due

9 Your small business is eligible for tax credits. For example, you can claim your input tax credits for GST/HST paid on goods and services used in making taxable and zero-rated supplies. If you re self-employed, claim CPP contribution payable on your income. There are also investment tax credits available on specific asset purchases. Forgetting tax credits means money out of your pocket.

10 Mistake 3: Missing filing deadlines, or not filing at all

11 Surprisingly, many small business owners fail to file a tax return or file after the deadline. Apart from catching some unwanted attention from the CRA, not filing a tax return means losing out on some financial benefits. GST/HST tax credit and the Child Tax Benefit programs are both based on declared net income. Your tax return also creates the contribution room in your RRSP. Of course, filing on time means never having to pay late-filing penalties. And we all hate penalties, don t we? And don t forget, even though the self-employed tax filing deadline is June 15, any amount owing is due April 30 to avoid interest.

12 Mistake 4: Commingling personal & business finances

13 So, you re at Costco picking up some groceries and you decide to grab some supplies for the office. You aren t likely to pull out one credit card for the bread and milk and another for the paper and printer ink. But, maybe you should. Keeping your business finances and home finances separate is very important. Commingling personal and business finances could lead to overlooking a legitimate business expense or claiming a personal expense as a business deduction. In addition to potentially increasing the likelihood of a CRA audit, this piercing of the corporate veil makes protecting your personal assets more difficult. Just say no to commingling.

14 Mistake 5: Neglecting to make taxsavvy investments

15 Taking advantage of tax laws as they pertain to investments is a great way to save on your tax bill. Most know the benefits of investing in TFSAs and RRSPs but what about timing the triggering of capital gains and capital losses of your unsheltered investments to reduce your overall tax burden. Did you know that you can deduct interest costs on money that you borrow to earn business income? Even the investment you make in your home mortgage can be made into a tax deduction.

16 Mistake 6: Failing to let family lend a hand

17 Running a small business requires the support and understanding of your family. We all know that. But, did you know that your family can also lend a hand by helping lower your tax burden? By putting family members to work and paying them a salary you can reduce your overall family tax burden. You can also improve your tax situation by income splitting with your spouse. You can invest in a spousal RRSP, split up to 50% of pension income with your partner, and even loan money to your spouse (or child) for investment purposes. And, invest in your children s education through an RESP and earn a government grant of up to $500 each year.

18 Mistake 7: Ignoring government incentive programs

19 The Scientific Research and Experimental Development Program (SR&ED) encourages Canadian businesses to conduct research and development (R&D) by providing cash refunds and/or tax credits for your R&D expenditures. The hiring credit for small business gives you relief from the employer s share of employment insurance by crediting up to $1000 on the payroll account, based on the increase in the employer s EI premium paid in one year over those paid the previous year. The apprenticeship job creation tax credit is a nonrefundable tax credit equal to 10% of the eligible salaries and wages payable to eligible apprentices to a maximum credit of $2,000 per year for each eligible apprentice. See, the taxman isn t so bad after all.

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