Prepping for Taxes
As anyone who reads the news (or this newsletter) knows, tax time is upon us. Anyone can file their taxes from now until May 1st (since April 30th is a Sunday) without penalty. If you owe tax and don’t file by May 1st, a penalty based on the amount of tax that you owe will be charged. Additionally, you will have to pay interest. If you do not owe taxes or are expecting a refund, there are no penalties or interest but benefits to which you might be entitled (child care, gst credit etc.) will be delayed.
I encourage everyone to file a tax return , regardless of whether they owe tax or even have any income. There are certain circumstances, covered in my blog post, where you must file tax return. But even if you don’t meet these “have to” criteria, I discuss the reasons why you should, not the least of which is that you might be entitled to some benefits or to carryforward tax credits. More importantly, it can prevent unpleasant and protracted interactions with the government.
The majority of Canadians have a fairly simple tax return. I’m a big proponent of people doing their own tax returns especially when it is straightforward. At the very least, you can use one of the many software out there to enter your information and then assess whether you feel comfortable with the results. You don’t actually pay for the software until you decide to submit your tax return, so the only real cost is time. Doing it on your own is also empowering and you don’t have to wonder if your tax preparer missed something or why your tax bill is so much higher than you thought.
When prepping for taxes, I recommend creating a physical folder as well as one on your computer, where all documents that potentially relate to your taxes are saved. This might include a T4 for salary (RL1 in Quebec), T5 (RL3) for investment income, RRSP contribution slips, medical expenses, donations receipts (these have a very specific format). Additionally, you might have a T5008 which shows gains and losses on investments during the year, childcare expenses paid to a daycare or babysitter, a receipt for professional dues or education/tuition receipts.
If you think something is tax deductible and have not received a tax receipt, it is worth reaching out to the service provider as it may have gotten lost in the mail (or your email).
CRA also has a feature called AutoFill your return, where you can download information that they already have on file such as your T4 and T5s (since these are usually submitted electronically to them). This can reduce some of the inaccuracies of manual entry.
If you are self employed or have an unincorporated small business, your tax return might be a little more complicated. However, I still encourage business owners who have an accounting system set up (whether it is a spreadsheet or accounting software) to give it a try. Essentially, you need to reflect your total sales for the year and expenses by category. In addition you can claim some home office and deduct car expenses (all to be discussed in greater detail in upcoming newsletters).
If you find diy-ing your tax return to be cumbersome, or you feel a sense of unease that you aren’t doing something correctly then it makes sense to seek out a professional tax preparer or an accountant. If you do submit your tax return and realize after the fact that there is an error, wait for the notice of assessment as often CRA (and Revenue Quebec) will discover the error and issue a notice of assessment with the correct information. If you receive the notice of assessment and the error hasn’t been corrected, you can then file an amended return.
We have a bit less than two months before taxes are due so there is still time. It isn’t too early, however, to start planning and prepping for them. And of course if you decide to do them sooner, you can cross it off your to do list and eliminate that source of stress.
Blog Post
A couple of posts referenced above on why all of you should file your taxes and some key things that every unincorporated small business owner should keep in mind:
Why Every Canadian Should File a Personal Tax Return
A friend of mine has been in a nightmare scenario with CRA. She hadn’t filed her tax return in a few years mostly because she had one T4, figured that she didn’t owe any tax and was simply procrastina
What Unincorporated Small Business Owners Need to Know about Filing Their Taxes
Being a small business owner comes with challenges, not the least of which is doing your taxes. While most Canadian taxpayers have relatively simple tax returns that can easily be completed using
Small Business Articles/Tips
Real estate news this week: A review of real estate news including increase in non mortgage delinquencies and worse affordability of homes.
Will Canada experience a recession? The Conference Board of Canada’s trackers shows that there is a 94% chance that Canada will slip into a recession. The good news is that it is likely to be mild.
Tax Stuff:
CBC Interview: My latest (short) interview on CBC radio where I talk about kicking off tax season.
Gig workers not declaring income : An article discussing how some gig workers don’t plan to declare income. I strongly recommend that people do declare their income as CRA is fairly sophisticated in sussing out self employed people and the risk can be substantial penalties (and the stress of being discovered)
Volunteer tax clinics: There are many tax clinics that offer free tax services to those in need. CRA has a list but also worth googling “volunteer tax clinics” in your area.
QuickBooks Tip: Reports
Depending on what version you use, QBO has a plethora of report options. You can see your sales by customer or product, purchases by item or vendor, detailed sales tax reports , cash flows and many others that are worth exploring. The key report, for taxes, if you are an unincorporated business is the profit and loss report which gives you insight into your sales and expenses and category. It is good to review at least this report periodically to ensure that your accounts reflect the underlying substance of your transactions and can be easily transcribed on to your tax return.
Books and Resources:
Small Business Tax Facts(Sole Proprietorships/Registered Businesses/Self Employed Workers)
This book helps you have a better understanding of tax (brackets, tax rates, deductions etc), how it applies to your unincorporated small businesses and how to do your own tax return (or at least understand what your accountant does). It also includes a comprehensive breakdown of deductible expenses, by category with special sections on more complex deductions such as home office, vehicle and capital cost allowance.
FastStart Your Corporation(Corporations)
A step by step guide to starting your small business corporation, including what you need to know about incorporation, setting up your accounting and tax considerations.
QuickStart your QuickBooks(Sole Proprietorships and Corporations)
A comprehensive guide that takes you through the many features of QBO and gives you step by step instructions on how to setup and work with QBO day to day. It is ideal for beginners who have never used QBO before and also for those who are currently using it, but have questions or need guidance.
FastStart Your Business (Sole Proprietorships)
A step by step guide for anyone who is planning to start a Canadian business or become self employed (and does not want to incorporate) and wants to know what they need to do or simply has questions.
Small Business and Your Dividends (Corporations)
For incorporated small business owners who want to know more about small business dividends, the differences between salary vs dividends and which is better and step by step instructions on how to file your own dividend declarations (T5s).
Use discount code “special” to save 20% on any (or all) book(s) when you purchase from the website.
Please note that all books on my website are in PDF format.
If you prefer a print version, all books are also available at Amazon . Note that print versions purchased on Amazon include a complimentary PDF - you just need to email me and include proof of purchase.
Free Resources
Business 2023 Tax Deadline Calendar (New!)
Starting A Corporation Checklist
Start Your Business Checklist
Dividend Declarations Checklist
Small Business Tax Return Checklist
QBO Set Up Checklist.
Small Business Calculators
Previous newsletters
Consultations
I also provide consultation services where I can answer your specific questions relating to your small business and/or finances, provide clarity and give you guidance. Additional details can be found here and here. Note that I no longer provide ongoing accounting or tax preparation services.
Reviews/Feedback
I would love to hear your comments on my current blog posts, topic ideas for new blogs, book feedback or anything else that you want to talk to me about. You can use my feedback form or email me directly at ronika@montrealfinancial.ca.
For anyone who has purchased my books through Amazon or directly and found them useful, I would be very grateful for a review on Amazon (to leave a review you only need to have an account with Amazon even if you did not purchase the book from there).
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Wishing everyone a lovely weekend.
Ronika