TaxMatters@EY - February 2015
Taking the stress out of tax season;
tips for private company owners to stay organized
David Steinberg, National Co-leader, Private Mid-Market practice
Tax season approaches us every year, seemingly right as we become the busiest in both our personal and professional lives. How can you keep on top of changing tax requirements? How can you keep your business organized? How can you make sure all the right paperwork has been filed?
Most Canadian private businesses face the same headache around tax time. With tax season looming, staying organized can be time consuming and even frustrating - but it doesn't have to be.
Taking a strategic and proactive approach to organizing your taxes can help reduce your anxiety. Luckily, there are some simple and straightforward things that you can do to stay organized, proactive and always preparing for the future of your business. Keep the following tips in mind.
Keep your documents at the ready
It's important to incorporate a system for organizing all the receipts and paperwork you'll need for filing your taxes or to provide to your tax professional. This may include your previous tax returns, financial statements, a detailed mileage and logbook if you're claiming your vehicle and records of food and entertainment expenses. It's also a good habit when claiming meal and entertainment expenses to record which client you were entertaining when the expense was incurred.
As you start off the new year, it's important to track your charitable donations and understand the tax-implications of those gifts, and whether they were made through your private company or through a personal account. Keeping a detailed log and receipts for all donations made, will help you receive the maximum tax benefit from your contributions.
If you're an annual GST/HST filer, you can recover the GST/HST paid by claiming input tax credits (ITCs) on your GST/HST return. In order for your claim to be allowed, you need to ensure you have accurate documentation and records in case your claim is reviewed.
Claim any eligible deductions
Now is the time to make your registered retirement savings plan (RRSP) contributions. The deadline for making your 2014 RRSP contribution is 2 March 2015. The earlier you contribute, the more time your investments have to grow, so consider also making your 2015 contribution in early 2015 to maximize tax-deferred growth.
An area often overlooked for eligible deductions is debt. Review your outstanding debt to ensure that you make your interest expense deductible to the maximum extent possible. Interest is only deductible if it was incurred to earn business or property income. It is always wise to pay off non-deductible debt as quickly as possible.
Ensure your accounting software is the right fit for the business
Taking the time at the beginning of the year to review your accounting software needs can help reduce some of the stress in managing your private business's finances. Knowing your business goals is the key for putting the right accounting software system in place for your organization. An integrated Enterprise Resource Planning (ERP) software program can help you tie together your company's financial reporting aspects and see the big picture - so you can make the right strategic decisions.
Accounting software for a privately owned company is not a one-size-fits-all notion. Keeping it simple is the key for any business. Implementing an ERP program that's too big for your company can cause you to mull over features that are not necessary for the business. At the same time, if ERP software is not comprehensive enough, you may end up wasting time creating workarounds to compensate for its lack of capabilities. You'll want to have a program in place that ties the entire business together and will evolve with your business as it grows.
Seek the right advice from the right people
As a private business owner, you know every dollar counts, and while using do-it-yourself tax software can help you monitor costs, engaging a good accountant can help you stay organized all year long. While your private company may not be required to have audits done, you can still have financial statement reviews performed.
The right accountant can help your business with not only tax returns, but with longer-term tax planning, business planning, networking and even personal tax planning if you're still the major stakeholder in your business.
Take the time to review your succession and estate plan
With a fresh start to the year, there's no better time to review your succession plan than now. If you have not yet considered your succession plan, start thinking about it now. Starting your succession planning journey early on provides you with the knowledge that allows you to drive the exit process.
Conducting an annual review of your estate plan will help you prepare for life's unexpected turns. Estate planning can help you reduce tax on death, defer tax as late as possible, provide certainty of the potential magnitude of the tax and consider the role of life insurance. You should review and update your will periodically to ensure that it reflects changes in your family status and financial situation, as well as changes in the law.
Preparing for tax time early and developing sustainable practices that you can easily adopt into your private business can help reduce tax stress. The new year presents the perfect opportunity to review and update your plans. Carry forward this year's best practices into next year and you'll set yourself up for a well-prepared tax season.
To learn more about how we can help private businesses, visit us at ey.com/ca/pmm.