Tax Tip Thursday

I have been running into this week’s issue a lot lately! I always counsel clients to not do this, but many people do their own thing. There’s also many I have not had the discussion with yet.

Your Business Accounts are NOT Your Personal Accounts

If you have a Sole Proprietorship or a Corporation, you need to remember they are separate entities from your personal life.

Especially important with Corporations, but still true with Sole props, you need to have separate bank accounts for the businesses.

There are many reasons for this and all of them work in your favour! It is completely to your benefit. For a little bit of organization and effort on your part, you save yourself thousands of dollars a year and potentially grief from the CRA.

By having separate bank accounts for your business, you save money in the following ways:

• It will cost you less in bookkeeping (we had a client bring us their bank statements that were both personal and business. We could probably have completed the books for the business, in about 15 hours, but instead, it took almost 30 hours).
• You will not lose any expense transactions for the business and therefore you will pay less tax (if personal and business are mixed in 1 account, we cannot do a reconciliation to determine if we have captured all your business expenses).
• If you are reviewed by CRA and they ask for your bank statements, you will be able to provide them without going through hoops to explain why you were using your business account as your personal bank account
• Another benefit of having your business financial transactions all in one place as it can serve as a measure of your businesses profitability. It is by no means a substitute for bookkeeping and monthly financial statements, but it can serve as a measure of your business’s financial well being.

Another real consideration with regard to the CRA is for companies that lose money consistently. If the CRA reviews or worse, audits you and your personal and business banking are mingled, there becomes doubt whether you are actually running a business or whether it is a hobby. You never want to be in this situation. One of the main factors in that determination would specifically be the lack of a business bank account. There are other contributing factors as well, such as sales volume, number of clients, product or service offered, expense volume, marketing, number of hours in the business, etc… While all of these are a consideration, having a separate bank account is a very easy way to head off one of the issues.

All of these things will contribute to you have to spend more time on your bookkeeping and potentially interacting with the CRA. It will also cost you more in accounting/bookkeeping fees on both an annual basis and especially if you get reviewed or audited.

Your Accountant Can Help!

As part of our Small Business Start up Package, we address all of these things and help you get your business back office set up property so that you can focus on running the business and doing what you do best! Book an appointment today!

Disclaimer:

This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal or tax advice nor can it or should it be relied upon. All tax situations are specific to each individual. If you have specific tax questions you should book an appointment for a 1 on 1 consultation.