Common Mistakes Small Businesses Make That Cost Them Money
Starting a small business can be challenging and dealing with taxes incorrectly can affect your growth. Every little mistake can cost you money, so engaging an experienced professional who can assist you with finances is recommended.
To help you avoid some basic errors that could prove costly, April Tax Solutions has put together a list of the most common mistakes small businesses make that cost them money.
1. GST needs and calculating payments
You don't need a GST number when you start a business. It's essential, however, that when you exceed $30,000 in sales in any quarter or 12-month period, you must obtain a GST number from CRA and continue collecting GST on any cost of services you provide (if not exempt like medical, health or school fees) going forward. It also will best serve you to start with the Annual filing of your GST (not quarterly or monthly) as it allows you three months to file after the GST period is completed. A little-known advantage within GST that makes it easier, especially for consultants, is the "GST Quick-Method". The easiest way to explain it is that if you collect 5% GST on an Invoice, you only have to remit 3.6% GST to CRA. In other words, if you collected $5 on a $100 invoice, you would only need to submit $3.60 to CRA. This removes the tedious task of totalling all of your ITCs (Input Tax Credits).
2. Not obtaining your helper's information
When you conduct business, you may need help temporarily, either for a brief time or perhaps randomly throughout the year. CRA needs to know who the money was transferred to so it gets removed/transferred from your income. This way, you won't be paying tax on income any longer yours, and you paid it out to a person or entity to assist with your business. For tax slip purposes, you must show who (person or business) you paid money to. Get their address, SIN or business number and other details like phone number and email address. The danger here is if you paid a subcontract of $5000 to someone. Suppose you don't have this information or can't reach them to gather this information later during tax season. In that case, you will be on the hook to pay tax on the $5000 as CRA will assume that this income is still yours without the information to complete the T4A or T5018 slip correctly.
3. Not keeping track of your business and the kilometers used
You may be using your vehicle for business travel to customer sites, banking, picking up supplies, or entertaining clients, which is all allowed, provided you have a mileage log. It must show the date of the trip, location, purpose, and distance traveled. When completing your taxes, the business travel kilometers divided by the total kilometers determines the percentage of vehicle usage which may be expensed. So between fuel receipts, oil changes, vehicle maintenance and repairs, the total of these would be allowed as an expense at the percentage of business travel you calculated. Note that in CRA audits of vehicle expenses, the first request is usually for the business log, and without being able to produce this - all vehicle expenses may be disallowed.
4. Not having any health benefits
In most cases, they pay their expenses from their own pockets unless through their spouse’s benefit plan. Did you know that you can expense medical receipts, paramedical (chiro, massage, acupuncture, physio), dental and vision through your corporation and get a 100% expense deduction? This is achieved using a third-party agency to review and approve your expenses. Its name is the Private Health Spending Plan (PHSP). Once approved, your corporation can reimburse you for that $500 dental bill you just paid. The main bonus here is that this setup is not a monthly premium but a pay-as-you-go style in that if you don't have any expenses to claim, you don't pay. But when you have costs, you submit them for review, a small processing fee is assessed, and your company is allowed to claim the expense.
5. Not paying your family members
Often we engage our spouse or children to assist with business tasks - so why aren't we paying them from the business? The main advantage here is that if you give them money, you'll need to provide them with a subcontractor tax slip (T4A) at year-end. This will give your business the expense, and the money you pay them, especially if children, will usually be income to them on their tax return which will usually be below any taxable income for them to pay any tax. Now they have their own spending money without you having to shell out your hard-earned after-tax money.
To avoid these and other mistakes, reach out to the experts at April Tax Solutions.
We are small business tax advisors and tax accountants in Calgary, Alberta. Our mission is to provide small business owners with better data and guide them to make better decisions for both their business and family situations to optimize tax savings ultimately. We deal in accounting, tax preparation, tax solutions, and bookkeeping and serve clients all over Alberta and British Columbia, including Calgary, Red Deer, Edmonton, Fort McMurray, Grande Prairie, Lethbridge, Canmore, Banff, Medicine Hat, Kelowna, Penticton, and Vancouver.
For a complete list of our services, please click here. If you have any questions about tax planning, we'd love to hear from you. For more information, please call us at (403) 999-7455 or email us at firstname.lastname@example.org.