At this time of the year, Spring is in the air, rain is falling, and leaves are growing back on the trees. But it’s bittersweet, as it also means that it’s tax time. And for small businesses, the few weeks leading up to April 30 can be a tough time of year as they scramble to get everything organized and filed on time.
According to the Government of Canada, as at December 2017, there were 1.18 million employer businesses in Canada, 1.15 million of which were considered small businesses. That’s an incredible 97.9% of all businesses in Canada, proving that the country really is built on small business and entrepreneurship.
For small business owners, then, dealing with tax time often falls on the owner, an employee in accounting (if the business is large enough to have an accounting “department,”) or contracted out help. If you’re handling things yourself in some capacity, here are a few tips to make things run more smoothly and maximize your returns.
Use tax software
Tax software can simplify the process, allowing you to input numbers and figures into pre-defined fields with guided help along with the way and more information if you aren’t clear about a specific field. Then, file your taxes immediately, directly from the program.
There are specific tax software options for different sized and types of small businesses. Lyft, for instance, recently partnered with Intuit Canada, which makes TurboTax and QuickBooks software, to help local drivers file taxes and track expenses. Lyft drivers receive TurboTax Self-Employed at a discounted rate, along with 18 months of free access to QuickBooks Self-Employed. Drivers can categorize expenses, log the mileage of every trip from their phone, and take photos of receipts to upload for safekeeping. The software, of course, is just as relevant for any self-employed individual, as is the Quickbooks Self-Employed mobile app.
Don’t forget the eligible write-offs
Intuit’s 2018 Side-gigs Survey found that 72% of Canadians with a side-gig did not use accounting or bookkeeping software to track expenses, which means they could have missed out on valuable deductions. Of those who did get help, 40% went the expensive route and hired an accountant or went to a tax store to get things done. According to Intuit, QuickBooks Self-Employed has helped find an average of $19,290 in tax deductions and $3,906 in tax savings per year.
There are lots of things a small business or self-employed individual can write off. Essentially, any expense incurred in order to earn business or property income is tax deductible. This can range from the gas you use to get to meetings (and the car you use to get there), to your mobile phone, computer, electricity that powers your home office, subscriptions for services used for research purposes, and even the ink you buy for your printer or coffee pods to serve to clients. Depending on the type of expense or asset, you can claim a full, partial, or depreciated amount. An accountant, or clever tax software, can help you determine the calculations with guided instructions as you input the relevant data. But do your research to make sure you aren’t missing potential write-offs, like parking fees and highway toll fees for business meetings, advertising costs, meals and entertainment, and more.
Pay taxes quarterly
Particularly for sole proprietors and self-employed individuals, the numbers of which have been steadily rising or remaining flat over the past four years in Canada, consider paying your taxes quarterly instead of by April 30 of the following year in one, big lump sum. This helps you avoid a massive hit to the business all at once and gives you a more realistic picture of the business’ financial situation month-to-month versus thinking (and spending or investing) more money than you actually have. In some provinces and specific situations, you may have no choice but to pay taxes in instalments, so make sure to do your research to ensure you’re following the rules, and paying what you should each quarter.
Deadlines for filing
Individuals and most business owners must file their income tax returns by April 30. An exception is small businesses who observe a fiscal year that doesn’t follow the traditional calendar year. In these such cases, tax returns are due six months after the end of their fiscal year.
Self-employed individuals have until June 15, but if you owe money, interest is assessed on the taxes due starting April 30. Netfile is open as early as February of every year so keeners can file quickly and beat the rush should you wish to do so. For those who pay in installments, they are due in March, June, September, and December of every year.
GST/HST payments are due one month after the end of the reporting period, regardless of if you file them monthly or quarterly.
For small businesses with employees, T4 information slips must be sent to them by the last day of February of the following year so they can file their own returns using accurate information. If you plan to hire employees as your business grows, note that you must fill out a TD1 form for new staff members within one week of them being hired.
Happy tax filing!
