Ian DiNovo has been settling small business owners’ concerns about accounting matters for 16 years. At his firm, the Certified General Accountant—who also vlogs about tax planning on YouTube—has witnessed numerous cases where a stressed client approaches him for help in tax planning just days before tax returns are due—at which point it’s far too late for any real planning. It’s no wonder these entrepreneurs find filing taxes to be a terrible exercise. DiNovo, however, believes with a bit of forward thinking and regular bookkeeping, it can be a less painful task for small business owners. Here are his four top tips:
1. Don’t leave tax planning to the last minute
“If your business’s filing due date is March or April, then now is not the time to do tax planning,” says DiNovo. Tax planning (a plan for how to accomplish all your financial goals in the most tax-efficient way) should be done beforehand, during the year, not near the filing date, he explains. “By planning early, I can put more plans in place and tax time just becomes a matter of filing the actual tax return, rather than tax planning,” explains DiNovo. He tells his clients that tax time should be strictly for filing the returns and creating tax plans for the following year.
2. Have a sit-down discussion with your accountant
DiNovo encourages business owners to hold face-to-face meetings with their accountants when they relay their financial information. Busy entrepreneurs often just drop off their documents at their accountant’s office and leave. But DiNovo says a one-on-one meeting allows him to discover additional information that could save his clients money.
For example, if he learns his client is planning to borrow money to invest in properties, he can structure the investment in a way that would grant them a bigger tax write-off. This would only work if his client told him about it before the purchase is made.
3. Keep your accounting up to date
“Business owners get too involved in their business and are not good bookkeepers,” says DiNovo. Their books are often not up to date, since they expect their accountant will help them piece everything together before the filing date, but accountants are busy serving multiple clients during tax time, and aren’t going to have as much time to work on a specific client’s file then as they would throughout the year, explains DiNovo.
To circumvent this problem, DiNovo would set up a spreadsheet system for his clients where they only need to spend one to two hours each month to keep their books up to date. This makes the work much easier during filing time, and avoids accounting mistakes.
4. Stay off the Canadian Revenue Agency’s radar
Make it a priority to pay your tax instalments on time in order to stay off the CRA’s radar, says DiNovo. The consequences of not paying your dues on time can be severe, he says. Business owners may be selected for an arbitrary assessment, where the CRA will personally audit their finance if they don’t respond to the agency’s calls and letters. It usually ends up being ten times the amount the business owner actually owns, and they end up giving the CRA more money than they would have originally.
MORE ABOUT TAXES:
- Why Canada’s inefficient corporate tax rules need to be streamlined
- Changes to the small business tax rate have entrepreneurs on guard
- Four ways to make tax time less painful for small business
- Five things freelancers need to know about filing their taxes