Tax time can be a cold-sweat-inducing, stressful time for anyone who runs their own business. But for those of us who've made costly tax mistakes, it can turn into a nightmare. Learning these lessons early will save you headaches and money in the long run — take it from these entrepreneurs that know too well what can go wrong.
Electrician Dan Beattie lives by the mantra: leave it to the professionals.
Now in his fifth year of businesses and with four employees on board, he hires a firm that specializes in small business accounting to do all the books for his company — and his personal taxes too. Beattie fully admits that he’s not number-savvy enough to do it on his own, but it took getting burned to realize that sometimes even those who claim to know what they are doing, don’t.
Don’t skimp on an accountant
In his first year of business Beattie was contracting in both Alberta and Ontario. At the end of that year, he took his documents to a generic tax preparation service (you know, those ones that pop up all over the malls this time of year). It wasn’t until he hired a CPA in year two that he found out his taxes were done wrong the previous year.
The mistake: The tax associate he first used didn’t clue into the different tax rates between provinces.
“I ended up paying a number of penalties,” Beattie said. “I’m not good enough with numbers to know that I didn’t pay enough. I ended up being behind the eight ball.”
Mark Loffler, a real estate agent in Hamilton, can empathize. When he started out in the real estate business almost a decade ago he learned a unforgettable lesson. “I failed to plan for the amount of taxes I had to pay. I spent my first quarter of the next year making my tax money [to pay] from the year before,” he says. “After that, I started putting money away and now I pay quarterly because it’s a lot easier.”
Hire a bookkeeper
Loffler also admits that he just wasn’t as organized as he needed to be. So on top of not having the money set aside to pay, he filed late and was hit with extra fees. “I thought I had until June 30,” he says. “I’ve hired a good bookkeeper. Now, everything is in its proper cubby hole and where it’s supposed to be.”
Remitting harmonized sales tax is another area that has gotten some small business owners in a bind.
“Cash flow is often an issue with small businesses. The money comes in and the money goes out,” explains Patricia Krotki of Polcan Design Group, an architectural design and construction company. “Yes, in theory the money you collect for HST should be in a separate account, but that isn’t always the reality. Unfortunately, there have been instances where we’ve had to go into a payment arrangement with the CRA, and the penalties are atrocious.”
Her advice: Put that money into a high-interest account and have it work for you while you’re hanging on to it.
Small business owners often become Jack and Jills of all trades, but learn from those around you — don’t DIY when it comes to bookkeeping, unless of course it’s your core service.
Remember, your first year will always be the hardest when it comes to tax season, but if you pay attention to the details, you can avoid a painful tax mistake.
- Hire a good accountant
- Stay organized, hire a bookkeeper if numbers aren’t you thing
- Know what you can write off as a business expense
- Pay quarterly if you’re worried about hefty year-end tax bill
- Know provincial regulations