I’ve been doing this a while now and I’ve seen people try and write off their entire lives as a tax deduction. Unfortunately, it doesn’t work like that.
Kris Rossignoli knows tax. With stints at the CRA, Deloitte, an ultra-high net worth single family office, and, most recently, in tax/estate and financial planning at Cardinal Point Wealth, he’s spent his entire career engrossed in the industry.
Each year, Kris helps small business clients prepare their returns and navigate an area of entrepreneurship that’s been known to cause some anxiety.
“I get it. I work in accountancy and I know that this time of year can be stressful for a lot of business owners. The good news is, there’s lots you can do to help make it a relatively smooth process,” Kris explains.
Knowing Your Tax Deadlines
As an entrepreneur, you are responsible for planning and preparing for tax season. According to Kris, the number one place to start is to know your CRA deadlines, and when your taxes are due to be paid.
“Whether this is your first time filing, or you’ve been doing this for years, I can’t overstate how important it is to stay on top of the filing and payment deadlines. Those deadlines are different for business owners depending on their individual circumstances.
“If you miss those deadlines, you start running into some nasty interest payments quickly. The current interest rate on overdue tax balances with the CRA is ten percent.
“Something all businesses should do is set up their CRA business account online. This will let you keep an eye on things throughout the whole year and not just at tax time.”
First-Timers Take Note
If you’re new to the tax filing process, welcome! Don’t let this annual event become something you dread. Instead, lean on the help that’s readily available to you. Just because you own the business doesn’t mean you need to have mastery of every aspect.
“Don’t try and do everything yourself. If you know you’re going to struggle to find time to keep your accounts in order, get help with it. Work with a professional.
“I’m hoping I can save people some pain here by mentioning the importance of bookkeeping and having your accounts up to date.
“I understand how busy entrepreneurs are. They’re trying to do multiple jobs at once, working long hours – it’s a grind. It can be easy to let your books get messy. You might not understand how to keep your books straight. It’s something I see a lot. It’s a major pain point for people.
“There’s three options you can take here.
- Do it Yourself Bookkeeping – via a program like QuickBooks.
- Online Bookkeeping Services– services like Bench Accounting.
- Human Bookkeeper – working with someone locally based who handles your books for you.
“Keeping your books updated isn’t just a benefit to you during tax season. It allows you to check in on the financial health of your business instantly, spot trends and tax planning opportunities, and even approach lenders for finance using hard data.”
How to Manage Deductions
Perhaps the one area of tax season that business owners don’t find a chore is deductions. They’re an effective way to bring down your tax bill, but like any other aspect of tax season, you’ve got to come prepared.
“When it comes to deductions, you’ve got to be meticulous with your receipts,” said Kris.
“You can only deduct what you can prove. Without a receipt, you can’t prove it. Deductions are subjective, and they depend on what line of work you’re in.
“Most businesses will have their classic deductions like advertising, meals with clients, insurance, interest and bank charges. Other businesses will have travel expenses, vehicle expenses, or even things like tools. The CRA keeps a detailed list of deductions on their site that you can cross-reference if you’re unsure.”
Don’t Push Your Luck
All business owners love deductions. But Kris cautions business owners not to get carried away or dishonest with what they try to claim. The last thing you want is to face a tax audit.
“One of the most common things I see is home-based businesses trying to write off their entire mortgage payment as a business expense. It’s really only your interest payment that’s tax deductible. Even then, it’s only a percentage of the interest based on how much of your home is used as a workspace.
“I’d caution anyone reading this to be conservative with what they try and deduct. The CRA has seen it all, and they’re really good at spotting things that don’t add up. The best way to approach deductions is to be honest and only make claims you can accurately back up. If you ever get audited, you’ll be glad you played it by the book and didn’t push your luck.”
Small Business BC is Here to Help
SBBC is a non-profit resource centre for BC-based small businesses. Whatever your idea of success is, we’re here to provide holistic support and resources at every step of the journey. Check out our range of business webinars, on-demand E-Learning Education, our Talk to an Expert Advisories, or browse our business articles.
