It’s that time of year again – everyone is talking taxes and it’s at the top of your mind even though you’ve been trying to avoid it all year. Besides just getting your taxes filed to avoid scary calls from the CRA and those hefty penalties and interest – tax season is a great opportunity to get a clear picture of your company’s financial health.
Money is the bloodline of your business so it’s important to have a finger on the pulse of your finances and not be afraid of it.
To make it just a little easier for you and in hopes that you can use tax season as an opportunity to understand where all your hard earned money is going, here is a guide with some quick tips and helpful information that might make this season a little easier and more informative for you!
Get Your Financial Books in Order
If you’re one of those people who have meticulously organized and tracked your business finances (i.e. income and expenses) throughout the year then you’re ahead of the game.
However, if you’ve been putting off dealing with your business finances all year, then now is the time to sit down and get organized!
If you’re a sole proprietor, using a tool like Microsoft Excel is a cost-effective and simple tool to track all your income and expenses. Alternatively, a more robust option is to use cloud-based accounting software such as Xero. There are other great cloud-based solutions such as Receipt Bank or Hubdoc that can really help you get your receipts and invoices organized. These are also great tools to store all your supporting documents, in the event of a CRA audit/review. You wouldn’t want to pass over receipts that have completely faded, in which case, they might disallow your expenses!
If you just don’t have the time to get your books in order and you have room in your budget, consider hiring a qualified bookkeeper to help you. Having clean and organized books will also help reduce your cost to file taxes (if you’re paying an accountant to file for you).
Pro Tip: Keep your detailed and itemized receipts for everything! Bank statements do not count as supporting documents for expense claims.
Don’t Miss The Deadlines for Filing Income Tax Returns
Small businesses that are operating as a sole proprietorship or partnership will have until June 15th to file their taxes. However, it’s important to note that any income taxes owing are due by April 30th. If you file late and end up owing taxes, you’ll pay interest and penalties on your outstanding tax balance until you submit your payment to the CRA. Keep your money in your pockets!
Small Business Tax Myths
1. My business did not make any money so I don’t need to report anything on my tax return.
False. Even if you had a net loss for the year (i.e. more expenses than income), you are still required to report your business income and expenses on your tax return. Moreover, it’s actually beneficial for you to report that net loss as you can apply the loss to other sources of income, such as employment income or investment income. If you can’t use those business losses in the current year, you can carry them back for three years and recover taxes previously paid or carry them forward for 20 years, to offset future earnings.
2. I made less than a thousand dollars and it’s just a hobby so I don’t have to report that income.
False. Even if you only made $10, you are required to report that income to the CRA. The CRA does not determine what is and what isn’t a business by how much money you make or by your intentions to “run a business”. They define a business as “any activity that you do for profit”.
Review the Financial Health of Your Business
Once your business finances are in order after filing your taxes, this is a great time for you to review the financial health of your business, see how you performed in the past year, and set financial goals for the year ahead. Did you make money or did you spend way more than you brought in? Was there an area where you spent way more than you expected? Where can you streamline costs and cutback on expenses?
Most business owners think that racking up tax deductions is great as it reduces your taxable income. However, you are still running a business and the goal is that your business will make money. Reducing unnecessary expenses also means there is more cash in your pockets and less outflow of money. Paying taxes is not a bad thing. It means that you are running a profitable business!
Scenario 1 –
If you made $1000 of income and spent $500 on expenses. You will only get taxed on $500. The taxes you would have to pay to the CRA would be approximately $125.
Amount of money left in your pocket at the end of the year = $375 ($1000 of income minus $500 of expenses and $125 of taxes).
Scenario 2 –
However, if you made $1000 of income and spent only $200 on expenses. You will get taxed on $800. The taxes you would have to pay to the CRA would be approximately $200.
Amount of money left in your pocket at the end of the year = $600 ($1000 of income minus $200 of expenses and $200 of taxes).
You are still better off at the end of the year, if you managed your expenses and spent less money on things just for the sake of a “tax write off”.
It’s a good idea to perform certain year-end tasks with your financial records at the end of the calendar year. Some of the tasks are just good financial housekeeping, while others are required by the government.
Fortunately, you can spread the tasks over the period from December to February.
The following sections outline information about the tasks to perform in each month, as well as employee-related tasks for the end of the year.
December is a good time to tie up loose ends for the closing year, to make profit distributions, and to start preparing for tax time with your accountant.
Create and send customer statements
The end of the year is a good time to remind your customers of any outstanding balances that they owe to you, or to send them a statement of their activity throughout the year.
It’s not mandatory, but you can choose to distribute profits (also known as Retained Earnings) to the owners or partners at the end of the year.
Prepare for taxes
Many small business owners use an accountant, especially at tax time.
If you haven’t already done so, now is a good time to give your accountant access to your QuickBooks Online company so they can review your financial reports and other data, and even make any necessary changes before the end of the year.
January is when you should reconcile your accounts, prepare summary reports, and (optionally) close your books for the previous calendar year.
If you haven’t already done so, it’s also a good time to get in touch with your accountant and talk about preparing for tax time.
Reconcile your accounts
At the end of the year, and when you prepare your taxes, you’ll want to have the most up-to-date and correct information in your financial reports. Reconciling can help ensure that.
When you reconcile an account, you compare the beginning balance and transactions listed in your QuickBooks Online company file with your monthly bank or credit card statements to make sure they match. Reconciling is like balancing a chequebook, as you review your bank statement to make sure it matches the amounts you recorded in your cheque register.
The process helps to ensure that important financial reports, like your Balance Sheet, are accurate.
Reconciling can seem intimidating if you haven’t done it before, or if you haven’t done it for a while if we can be of assistance please get in touch
Run Balance Sheet and Profit and Loss reports
The start of the new year is the natural time to run reports and evaluate how your business performed over the previous year.
Running reports is also an essential part of preparing for taxes.
The two most important reports that you and your accountant will need are the Balance Sheet and Profit and Loss reports, and it’s a good idea to run these reports at the beginning of the year. Make sure the date range in the Transaction Date field for these reports covers the year you’re reporting on.
The bulk of your year-end work should be complete by February, with just a task or two to finish up and prepare for taxes.
Prepare for taxes
An accountant is a valuable resource, especially at tax time. If you don’t have one or are looking for a change give us a call
If you have employees (not independent consultants or contractors), there are additional tasks you should complete at the end of the year, along with additional government forms to file and deadlines to meet.
If you use standard QuickBooks Online Payroll, you can access information about year-end payroll tasks in QuickBooks Online by selecting Employees from the left menu, and then selecting Payroll year-end guide.
If you use a different payroll provider, it’s important that you consult them for items and forms to complete for the end of the year.
Review these important direct deposit cut-off dates as you plan your year-end payroll work.
Approve payroll by
December 24, 2021
December 22, 2021
December 25, 2021
N/A on holiday
December 26, 2021
N/A on holiday
December 27, 2021
N/A on holiday
December 28, 2021
N/A on holiday
December 29, 2021
December 23, 2021
December 30, 2021
December 24, 2021
December 31, 2021
December 29, 2021
January 1, 2022
N/A on holiday
January 3, 2022
N/A on holiday
January 4, 2022
December 30, 2021
January 5, 2022
December 31, 2021
Other dates to remember
As you work through your year-end plan, don’t forget these important dates for your T4 and RL-1 forms.
January 4, 2022- Electronic filing options are available online with Canada Revenue Agency and Revenu Québec.
February 28, 2022- The deadline to export your T4 file and submit T4s and RL-1s with CRA and Revenue Quebec. You also must provide your employees a copy for their own records, which they use to do their personal income tax.
The new ROE process in QuickBooks Online Payroll allows you to generate an ROE, download it as a .BLK file, and upload the file to Service Canada.
QuickBooks Payroll will guide you through ROE generation, ensuring the same level of validation as ROE Web. The benefit of having this process in QBP is that the product will help identify any issues in the form so you can correct before submitting. QuickBooks error identification is based on information provided by Service Canada.
If you wish to review and understand that information, Service Canada has a thorough block-by-block explanation of all ROE fields available here.
If an error is displayed while completing your ROE, you will need to close the ROE submission and go back into the product to fix the error. We have listed the necessary walkthroughs by ROE Block in order to guide you through error correction.
Task based budgeting is not brand-new. As early as 1990, some companies in nations like the USA as well as Australia executed this brand-new budgeting program to change the recognized as well as old approach of budgeting, the “line thing budgeting.”
Task based budgeting is a technique of budgeting in which tasks that sustain
expenses in each feature of a company are developed as well as connections are specified in between tasks. This details is after that utilized to choose just how much source must be designated to every task.
To put it simply, task based budgeting is budgeting, preparation as well as regulating by tasks as opposed to price components of a company. For individuals of this budgeting program, they declare that it involves everybody in considering just how they can much better develop worth for company. It creates a versatile spending plan based upon task workload that is not as stiff as journal of the line product budgeting that pre-identifies prices even though that expense might not serve in any way.
Activity-based budgeting is just arranged sound judgment. A lot more especially, task based budgeting is a method for improving the precision of monetary projections as well as boosting administration understanding. When automated, task based budgeting can quickly as well as precisely generate monetary strategies and also versions based upon differing degrees of quantity presumptions.
Task based budgeting likewise can remove a lot of the laborious operate in standard budgeting. Task based budgeting examines the solutions or items to be created, what tasks are called for to generate those services or products, as well as what sources require to be allocated to do those tasks. Put simply, task based budgeting is the opposite of the activity-based setting you back procedure to create monetary strategies as well as budget plans.
With the introduction of effective and also low-cost data source systems, task based budgeting is enabling companies to decrease expenses, much better use sources, and also attain tactical purposes.
The Australian National Audit Office has actually recognized the benefits of task based budgeting:
– Output expenses are sustained by a routine of set you back tasks – Opportunities to take a look at job procedures – Identifies non value-adding tasks that can be removed – Basis of an efficiency dimension system as well as straight web link in between calculated
objectives as well as functional truths – Enables expense accounts to be taken care of – Accurate setting you back information for functional administration – Costs are clear, workable as well as easy to understand
– Activity meaning might come to be as well thorough as well as the version might come to be tough and also intricate to keep – Underestimation of the job of gathering task motorist information – Implementation might be thought about a monetary administration “trend” and also there wants dedication from functional supervisors
Task Based Budgeting Disadvantages
– Usually needs acquiring Activity Based Budgeting software program
– Requires training of all supervisors consisting of budgeting division – Requires individuals to truly comprehend what drives their spending plan – Eliminates justification that task quantity transformed since it makes noticeable quantity modifications – Requires everybody to approximate or accumulate task quantity
By comprehending just how sources are changed right into solutions or items, as well as by focusing on the price of tasks, task based budgeting assists an organization to acquire a greater understanding of just how prices act in their company as well as which tasks develop considerable quantities of expense. Organizations can after that start to regulate their expenses based intangible tasks as opposed to reasonably uninformative basic journal or expense centre reports.
In various other words, task based budgeting is budgeting, preparation as well as managing by tasks instead than price aspects of a company. It establishes a versatile budget plan based on task job tons that is not as stiff as journal of the line product budgeting that pre-identifies expenses even though that price might not be of usage at all.
When automated, task based budgeting can quickly as well as precisely generate economic strategies as well as designs based on differing degrees of quantity presumptions.
Task based budgeting likewise can get rid of a lot of the laborious job in conventional budgeting. Task based budgeting evaluates the solutions or items to be generated, what tasks are called for to generate those items or solutions, and also what sources require to be allocated to carry out those tasks.
If you don’t keep track of how much money you’re making, you have no idea whether your business is successful or not. You can’t tell how well your marketing is working. And I don’t just mean you should know the amount of your total sales or gross revenue. You need to know what your net profit is. If you don’t, there’s no way you can know how to increase it.
If you want your business to be successful, you need to make a financial plan and check it against the facts on a monthly basis, then take immediate action to correct any problems.
Here are the steps you should take:
Create a financial plan for your business.
Estimate how much revenue you expect to bring in each month, and project what your expenses will be.
Remember that lost profits can’t be recovered.
When entrepreneurs compare their projections to reality and find earnings too low or expenses too high, they often conclude, “I’ll make it up later.” The problem is that you really can’t make it up later: every month profits are too low is a month that is gone forever.
Make adjustments right away.
If revenues are lower than expected, increase efforts in sales and marketing or look for ways to increase your rates. If overhead costs are too high, find ways to cut back. There are other businesses like yours around. What is their secret for operating profitably?
Think before you spend.
When considering any new business expense, including marketing and sales activities, evaluate the increased earnings you expect to bring in against its cost before you proceed to make a purchase.
Evaluate the success of your business based on profit, not revenue.
It doesn’t matter how many thousands of dollars you are bringing in each month if your expenses are almost as high, or higher. Many high-revenue businesses have gone under for this very reason — don’t be one of them.