So you’ve already completed one of the most challenging things, your business has survived its first year. Analysts estimate that around 20% of small businesses fail within a year, and passing this milestone is something to be proud of.
The next step is dealing with your taxes. They can intimidate even the most seasoned business owner, and having an adequate plan to handle that part of your company is essential, believe Rotfleisch & Samulovitch. There are numerous sources that offer a fair amount of information on approaching your levies.
Honoring Your Tax Obligations
You must set up your business the right way from the start. You don’t want to get caught off guard when the taxman comes knocking and then realize that you skipped crucial steps. It’s vital that you know what type of company you’re operating as; a sole proprietorship or a partnership.
Let’s take a closer look at how you should be dealing with your taxes in either situation.
Your Income Tax Return
Sole proprietorship allows for the owner to file their personal income taxes along with their business’. This means that as the sole proprietor, you take on all the risk, meaning all your assets can become collateral in the event your company folds.
A partnership also doesn’t file taxes as a whole. Instead, each individual partner has to do their taxes separately. Both forms of operations must report on the T1 personal income tax form. So, make sure you have your documentation ready for when you file the paperwork.
Income Tax Deductions
Some of the income your company receives might be tax-deductible. There are certain things you can do to increase the amount you can claim back. Firstly, you should keep all your business-related receipts. This refers to even the smallest transaction, and keeping track of them will save you a great deal of trouble later on.
Ensure that all the receipts you keep have the required information on them and that they are legible. Make a habit of checking new slips at the end of each day so you can address any issues promptly.
There are also some deductibles related to your vehicle. This includes everything from fuel and oil to lubricants. You can also claim for fees concerning license and registration. If you lease your car, you’re also able to deduct the lease amount.
It would help if you remembered, however, to distinguish between the company and personal use. You can only deduct expenses that occurred while the car was being used in an official capacity for the company. If you fail to do so, it can land you in some serious hot water.
Now, depending on how your business is structured, the tax process might be a little different. Sole Proprietorships and single-owner LLCs are lumped in on your personal tax return. This means that all of the income generated by both your business and personal endeavors are taxable and fall into one of the seven tax brackets for 2022. Any other business structure is taxed as a separate entity.
Taxes for Home-Based Businesses
There are also some tax deductibles for those who run a home-based business. Some of the costs related to home maintenance and ownership can actually be claimed back. Just as with a regular operation, you can deduct a portion of your vehicle use from the tax authorities. The same rule applies as before, where you need to be sure to separate personal and business-related use.
Some people might overlook business insurance when working from home. This can be a mistake, as you run the risk of being refused payout by your home insurer if they’re unaware that a company was operating on the premises. Be upfront with your insurer, and if you meet the requirements, you might be able to deduct some of your premiums from your levies.
Other deductibles also come into play, like your mortgage, utilities, property tax, and related office expenses. That’s why just like with a sole proprietary owned operation, you need to ensure that you keep all your receipts; you never know if it’ll make a difference when the tax authorities come knocking.
Getting an Accountant
The tax system has a way of striking fear into the hearts of business owners, and that’s one of the reasons many small companies prefer to get an accountant to do their taxes. Not only do they have a wealth of knowledge on the subject, but they can also save you a great deal of time.
It’s a good idea to have an expert do your returns the first year so that you have some peace of mind going forward.
Tax is Part of Business
Whether your new company is solely owned or you’re part of a partnership, you’ll need to deal with your annual levies. You need to know which of your expenses are deductibles, helping your new company save a little when it comes to tax returns. Don’t be afraid to get some professional help when dealing with the taxman; it could save you some headaches.
