Tax season is almost here, so let’s talk about how you can tackle your small business taxes the easy way. Whether you file them yourself or hire a professional, there are many things you can do to take the stress out of tax season. If you think about it, every year you take very similar steps to submit your small business taxes, yet every year it can be stressful. Where are all my receipts? What can I claim this year? When am I ever going to find the time to tackle my taxes? Whatever your worry is, you can minimize it by creating and following a system that works for you. Follow these tips to create a system so you can tackle your small business taxes the easy way!
Keep an Accurate Sales Journal
For all of your sales transactions, be sure to include the date, amount, and source of the income. This can be done in a simple paper journal, on a spreadsheet or using accounting software. However you choose to keep track of your income, ensure that you keep your original supporting documentation (i.e. receipts, invoices, cash register tapes, etc.). Ideally, you want to store this information together in one place. For example, if you are inputting your sales into a spreadsheet, you can store digital copies of your documentation in a subfolder, right alongside your spreadsheet.
Keep an Accurate Expense Journal
Just like your sales journal, your expense journal can be on paper, in a spreadsheet, or stored in accounting software. In order to claim an expense, your receipt must have the date, the name/address of the seller, the vendor’s business number (if they are GST/HST registrant), and a full description of the goods/services. Note that the CRA doesn’t accept a bank statement as proof of an expense; you must have an itemized receipt. It is good practice to write a note on the back of your receipts (or digitally) about what the expense was for.
PRO TIP: Make a list of categories of expenses that relate to your business. When you record expenses in your journal, allocate this amount to the corresponding category.
Here is a list of common expenses you can claim as a small business owner:
- Business use of home
- Vehicle expense (be sure to keep an accurate mileage log!)
- meals/entertainment (50%)
- Advertising
- Office supplies
- Capital assets (large purchases that depreciate over a period of time)
- Accounting and legal fees
- Business Insurance
Keep a Tax Folder
Create a folder labelled Taxes 2021 to store all of the documentation you need to file your taxes. As you prepare your taxes this year, create a checklist of all the items you had to gather, calculate, and reference. Perhaps there were things that you could have claimed, but you don’t have the proper documentation. Make a note of these so you can be more prepared for next year.
Set aside Time
Taxes are often a task that gets pushed off multiple times until you are cramming before a deadline (or perhaps the deadline has long passed). Get into a routine of setting aside the time you need to stay on top of this. For example, set aside time once a month to tidy up any loose ends in your receipts or paper work. Be sure you are storing everything related to taxes in your Taxes Folder. It is also a good idea to set aside some time to research any special tax deductions or incentives that you may qualify for. And be sure to set aside some time to verify that your t-slips match your records. You can also put reminders into your calendar for the tax due dates, along with blocking out a time to complete it ahead of time. Always leave a buffer to allow for things to go wrong!
Tax time doesn’t have to be so overwhelming. With these tips and tricks, you will be ready to tackle your taxes the easy way! If you need some help getting organized, don’t hesitate to reach out!