5 Ways to Make Next Tax Season a Breeze

5 Ways to Make Next Tax Season a Breeze

Social Studies | Posted by YouInc.com - May 8, 2014 at 12:30 am
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By this time of year, you probably don’t want to think about tax planning anymore. But if you found this year’s tax season particularly daunting, you’ll be relieved to know that a little bit of planning now can help you save time and money in the future. “The most important step is getting organized, and you can start that process right away,” says Heather Pearce, a chartered accountant in Toronto who works with entrepreneurs.

You’re an expert in your own product and business, but you’re likely not a tax expert. The good news is that you don’t have to be.

She recommends the following tips to help entrepreneurs make next year’s tax season less stressful.

1. Seek Advice As an entrepreneur, you’re an expert in your own product and business, but you’re likely not a tax expert. The good news is that you don’t have to be – that’s what your accountant is for. “Pay for one or two hours of advice with a qualified individual, not a friend or colleague,” Pearce suggests. Yes it’s an expense, but a relationship with a chartered accountant who specializes in working with entrepreneurs is invaluable to your business. Make your first appointment now so you’re prepared for next tax season, then schedule reminders in your calendar to check in with your accountant throughout the year to ensure you’re on track with your planning.

2. Be Proactive Don’t let tax season sneak up on you – once your year-end is over, it’s too late to reduce the amount of taxes you owe. “Tax planning should be a yearlong process,” Pearce advises. “If you need to make changes or ask questions about how to lower your tax, you should do so in the year in which you think the problem is going to occur.” Evaluate your finances year-round with taxes in mind, and book a check-in with your accountant around mid-year. “We can do a quick calculation at that time and if you owe more than expected, we can discuss strategies to reduce the amount, such as investing in office supplies or other necessary expenses,” Pearce says.

3. Consider Incorporation Incorporating, if it’s right for your business, may offer you significant tax savings. “As a soul proprietor, the full profit of your business comes under your individual taxes,” Pearce explains. As the individual tax rate is often much higher than the corporate rate, you could see your taxes rise substantially as your business becomes more profitable. But as a corporation, your business is taxed as a separate entity from you as an individual, which helps reduce the flow of money that ends up on your own taxes. Of course incorporation comes at an expense, so it’s important to weight the pros and cons. If your business making an annual net profit of more than $80,000, talk to your accountant about whether incorporation makes financial sense.

4. Invest in Worthwhile Expenses Potential tax savings should never drive your spending decisions, but making smart purchases is part of good tax planning. “Some entrepreneurs aren’t spending any money on their businesses, but they should,” Pearce says. Entertaining clients, subscriptions to trade publications and professional memberships are all tax deductible expenses that can help advance your business while reducing your tax burden. Consider enrolling in a course or attending an industry conference each year to help upgrade your skills and keep your network fresh.

5. Pay Your Installments If you owe more than $3,000 in taxes, the Canada Revenue Agency (CRA) requires that you pay installments throughout the year based on your projected income. “You’ll be charged penalties for not making these installments, and the penalties aren’t tax deductible,” Pearce warns. “Just because you file your taxes annually doesn’t mean you only pay annually.” The CRA doesn’t send letters about HST or corporate taxes due, so it’s important to stay on top of your installment schedule throughout the year to avoid costly late fees.

Tags: accounting, incorporating, taxes, tax planning, health

Jennifer Goldberg
Jennifer Goldberg is a freelance writer and editor based in Toronto. She's an avid magazine reader, art lover and co-founder of Tavanberg, a multiplatform content agency in Toronto. She has edited or written for Best Health, Flare, the Globe and Mail, and more. Check out her work at jennifergoldberg.ca. Twitter: @jennmg
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