Tips For Business Tax Filings in Canada
You work hard as a business owner or manager. After working with cash flow, suppliers, customer feedback, and employee activity among other considerations don’t forget one important matter to attend to every month: the tax filings.
There are unique hoops to jump through when doing taxes as a corporate entity. Here are some tips to get you started under Canadian law.
Knowing the Due Date
Technically, the T2 return due date is 6 months after the business’s fiscal year. Specifically, it’s moved to the next business day if the deadline lands on a weekend or holiday. June 30th is a popular time to file your taxes as an incorporated business.
Keeping Solid Tax Records
Consider hiring a dedicated bookkeeper, as business taxes tend to be rather complicated. Keeping proper and organized records of all your tax activity is essential. If you ever are under investigation by the Canada Revenue Agency, it’s up to you to provide the right documentation.
You want to keep records separated by month, and make a distinction between the different types of bank and credit card statements. Remember to keep records of all transactions, including changes in your revenue and expenses. Examples include bank statements, deposit slips, invoices, receipts, and any communication you’ve had with the Canada Revenue Agency.
Separating T1 from T2 Taxes
T1 General is a personal tax return; T2 is the corporate tax return for your business. Remember to record your expenses separately on each return, as you and your business are considered separate legal entities. Do not attempt to deduct business losses against your T1 taxable income.
Finding the Right Forms
Check the Canada Revenue Agency website for all the T2 Corporation Income Tax Return files to fill out. These typically include, but are not limited to:
- Schedule 1 – Net Income for Tax Purposes
- Schedule 8 – Capital Cost Allowance
- Schedule 11 – Transactions with Shareholders, Officers or Employees
- Schedule 50 – Shareholder Information
- Schedule 100 – Balance Sheet Information
- Schedule 125 – Income Statement Summary
- Schedule 200 – T2 Corporation Income Tax Return
Double check with your accountant which forms are required for your individual case. Dealing with tax filings, even as a business, is not a challenge if you are prepared and organized for the job.
Calculating Eligible Expenses
Keep in mind that you can claim tax deductions on expenses incurred while working as a business owner. For example, contractors may claim travel, supplies, and materials. Most individuals can claim gas mileage. While deciding which expenses are eligible is rather subjective, just try to be reasonable about it and double check everything.
Think About Starting an HSA
An HSA is a Health Spending Account. Unlike insurance which is mainly for significant, low-probability events, an HSA is much better for regular health checkups like dental appointments. HSAs are common among small business owners because of their little-to-know premium rates.
Deciding on Payment Frequency
If you’re self-employed, you likely pay in quarterly installments. However, the Canada Revenue Agency generally allows incorporated businesses to pay monthly, which is the setup we recommend.
Doing so makes managing cash flow easier and minimizes the risk of accidentally missing a payment. While there are instances where businesses may pay quarterly, go for a monthly payment schedule whenever possible.
Look For Software That Can Help
We aren’t living in the age of papers and binders anymore. Modern software and services can streamline your tax filings at a low cost. Some cloud-based solutions even give you access to your information from any location at any time, and data encryption ensures your data is secure.
Quickbooks is one example that can help with accounting processes as well as other business activities.
The Best Advice? Be Organized
Tax season doesn’t have to be stressful if you are prepared. But being organized means maintaining accurate books throughout the year, logging invoices, and ensuring all expenses are properly accounted for. Some POS systems can help take care of everything.
Remember, tax season is fast approaching and the traditional calendar year for 2020 has now ended. Ensure your books are in order and that you’re up to speed when it comes to your 2020 business taxes.