Tax lawyers in Victoria see mistakes from business owners all the time because, let’s face it, the tax world is complex. Here are the most common errors businesses make, that you can avoid.
Mistake #1 Trying to Make Deductions before the First Sale
Eager to reduce income tax, start up business owners try to deduct their initial costs before they make their first sale. Tax law actually says you can’t do this. Here is what you can do: You can deduct your start up costs over 15 years after you make your first sale. Or if your start up costs were $50,000 or less you can also deduct the first $5,000 start up costs (computers, building space, etc) in your first year and you can deduct $5000 in organizational costs (legal fees, incorporating, etc). The best way to avoid this mistake is to discuss your write offs with your tax lawyers in Victoria. They will be current in the most recent updates to tax laws which change on a regular basis.
Mistake #2 Trying to Write Off Personal Expenses
Yes there are certain advantages to owning a business and one of them is the amount of money you can write off and deduct from your income to ensure you pay less income tax. However, when you over do it and write off things that are very clearly personal items like groceries and items for your pet, it raises a red flag with the CRA. The last thing you want is to be audited by the CRA. Not only is it a problem with CRA but also with your accountant, having to go through your write offs with a fine tooth comb and fix errors is time consuming and costs you money.
Instead, keep all personal and business expenses separate. Don’t use your business account for personal items and keep your business receipts in a separate box or folder.
Mistake #3 Incorporating when it’s not Appropriate
Under Canadian tax law incorporated companies pay taxes on any profit and then shareholders pay income tax on their income from the company. So you pay the taxes twice. There are certain advantages to incorporating but taxes certainly aren’t one of them. For many small businesses in Victoria a sole proprietorship may be a much better option. It’s best to talk to a Victoria tax lawyer about which business structure suits your needs best.
Mistake #4 Paying Taxes Late
This another red flag for the CRA. Pay your taxes on time to avoid interest and a scary audit from the CRA.
Thanks to The Victoria Law Group At Cook Roberts for explaining the 4 common tax mistakes small business owners are making.