Okay, we know tax season is still a few months away.
But what you’re doing now will actually affect the process when you file your return. And well… the level of stress that you’ll experience.
The tax year in Canada ends on December 31 and you have until April 30 to file, but that’s the final deadline. So if you’re organized in January you could be receiving a tax refund months earlier. Often most of us are caught up in day-to-day things and leave anything tax-related to the last minute. So it’s no surprise that this is the case for individuals, entrepreneurs, and businesses. But it can lead to serious penalties if neglected.
One way to avoid this is to seek the expertise of a business advisor. That’s where Manning Elliott LLP, a CPA and business advisory firm with locations in Vancouver and Abbotsford, comes in. The firm actually understands the financial and tax needs relevant to individuals and businesses.
Daily Hive spoke to Manning Elliott senior tax manager and business advisor Lyndon Braun, CPA, CA, to find out why it’s important to pay taxes and what happens if you don’t.
Even if you’re taking the SkyTrain, hold on to your receipts. You’ll be able to add these up before you file your return and get money back for your expenses. Many entrepreneurs and business owners fail to get organized in the beginning and it can become a lengthy, expensive process in the long run. “One thing we try to do is get a business organized first because people are often very good at managing their businesses but not necessarily their expenditures or the income their business generates. They could have a pile of receipts in a shoebox and that doesn’t provide their accountants with good information on how they are running their business. Writing a note on the back of a receipt when you receive it can be quite helpful.”
You may not have known that if you’re setting up a business, you can claim a tax deduction for your expenses on things like your car, a cell phone, and internet bills. “If you have a home office and you’re paying for internet access to try and get your business up and running, or you’re buying server space somewhere, making sure that the business portion of this is captured is key. Deductions do help when it comes down to final tax bills and you’re starting to generate some revenue.” Braun noted that the biggest area that people often try to “push the envelope” in is with the vehicles they acquire through their business and plan to write off a large portion of the usage. If you’re trying to claim tax back on outrageous things, the chances are they’re illegal. “We don’t see too many crazy things, the big reason for that is that it’s likely against the law if it’s too crazy.”
It’s important that you pay your taxes every year because refraining to will only lead to trouble in the long run. “There are lot of business owners who will say ‘I had that receipt four years ago but I don’t have it now’. The cost of not being able to produce the receipt many years down the road is quite ugly,” said Braun. The tax specialist told us that he recently worked with a client who hadn’t paid their taxes in 17 years. As a result, they had to pay expensive professional fees, penalties, and interest that incurred over a long period. “$20,000 17 years ago is probably $60,000 or $70,0000 today because there’s compounding interest for failing to deal with it on time.” So even if you don’t pay your taxes for three or four years, things won’t look pretty. And that interest will keep mounting… and mounting. That’s why it’s worth speaking to a business advisor at Manning Elliott today.
Since there’s a self-reported tax system in Canada, the government relies on you to self-report your income and expenses. So as part of this, every tax payer has the obligation to hold onto proof of their income and expenditures incase an auditor comes along to check for claims. “If you don’t file a tax return it doesn’t necessarily mean that you’ve done anything wrong. It’s if you have an income and don’t file it, then you are doing something wrong. It takes some verifying by the government to figure that out.”
Even though you still have a few months until you have to file your taxes, getting ahead now will serve you in the long run. This could start with getting your receipts in order by date and category. If you’re an entrepreneur or business owner you can easily sit down with a business advisor at Manning Elliott LLP to get things started and understand your tax application. It’s much better to act sooner rather than later. Because you really don’t want to have sit down and calculate several years worth of taxes all at once, do you?
Manning Elliott LLP is one of the province’s largest independent regional accounting and business advisory firms with offices in downtown Vancouver (604-714-3600) and in Abbotsford (1-604-557-5750). The firm has been around for more than 60 years and employs over 150 professionals and staff.