The Tax season is one of the most stressful times of the year for many SME owners. This is largely because we tend to wait until the last minute instead of planning and preparing our taxes throughout the year.
You can reduce your stress by implementing the top business tax saving tips shared on tax preparation, tax deductions and filing your tax return.
One of the ways that you can save money on your taxes is by using real-time accounting software like the Zoho Books, QuickBooks and lots more, for small businesses. Real-time accounting software can help you keep track of your income and expenses so that tax time is smooth and easy.
Here are the best business tax saving tips to help you during the tax period:
- Use Payroll Tax Software to Avoid Costly CRA Penalties
Did you know that nearly one-third of all organizations get penalized each year for incorrectly handling payroll taxes? This is due in large part to the fact that around 40% of businesses with employees try to handle payroll on their own, using paper or spreadsheets without the support of a third party. Do not get caught in this trap.
- Keep Business and Personal Finances Separate
The general mistake of small business owners is to mingle business and personal funds. It is important to have a separate business checking account and credit card account for your business. This will make things a lot easier when it comes to managing your books and getting deductions prepared for tax time. If you are ever audited by the CRA, you want to make sure that you can produce documents that support legitimate business expenses.
- Get Organized with a Filing System
One of the primary reasons people dread tax time is because they are not prepared, often times causing them to pay more in fines or claim fewer deductions. By implementing just a few things into your daily, weekly, or monthly routine you can remove the stress that tax season can bring on and also save money.
Here are a couple of recommendations to get you started:
Set up a Filing System to Keep your Paperwork in One Place
Get a dozen expandable binders so that you have one for each month. Mark each binder with one of the 12 months and file all receipts, deposit slips, ATM withdrawal slips, etc. into their separate binders.
Block out a Couple Hours Each Month on Your Calendar
If it is not on your calendar, it most likely will not get done. Nevertheless, if you set aside just a few hours each month to coordinate all of the paperwork in the folder, you will avoid having to do 12 months at once. During this period, you want to reconcile your bank and credit card accounts by matching up your receipts with the statements received from your bank.
Use real-time Accounting Softwares like ZohoBooks, QuickBooks etc, to Track Revenue and Expenses.
Using Accounting software can make tax time easy and can help you claim all your discounts. Once you have updated the program with all of your business revenue and expenses, you can quickly create financial statements in just a few minutes to send to your CPA or tax professional so they can file your tax return.
If you don’t have the time to input data and manage accounting software, let a virtual bookkeeper do it for you.
Take the Auto Expense Deduction
If you use your car for your small business, you can deduct car expenses. You can choose one of the following methods to calculate your auto expense deduction:
*Standard Mileage Rate
For this method, you would multiply the total miles driven for business by the standard mileage rate for the year.
*Actual Car Expenses
You can deduct actual car expenses like gas, repairs, and insurance. However, if you use the car for personal and business, you will need to calculate the percentage that the vehicle was used for business purposes first and then apply that percentage to the total car expenses.
For example, if you drove your car a total of 15,000 miles and based on your mileage tracker 6,000 of those miles were for business then you would divide 6000/15000 which equals 40%. Therefore, you can deduct 40% of your total car expenses as a business deduction.
Deduct Business-Related Meals
You can deduct 50% of meals that are considered business-related. This includes taking a client or a potential client out to lunch. It could also include ordering pizza for the office as a special treat for your employees. Just ensure that these meals are not extravagant or wasteful.
It is essential is to treat your business finances as if they were your personal funds. Don’t dine at that new restaurant or play a round of golf at that country club just because you can write off half of the cost. Nonetheless, if those are places that you wouldn’t hesitate to spend your own personal money then you should be ok to take the deduction.
Use Contractors Staff or Adhocs Instead of Employees
Most business owners when just starting out cannot afford to hire employees because they have to pay payroll taxes and provide other benefits, in addition to wages. By hiring an independent contractor, you do not have to pay benefits or payroll taxes.
However, make sure that you understand the difference between an employee and an independent contractor. If your independent contractor meets the legal definition of an employee, you could face penalties.
Watch out for part 2 of the above topic!