Tax Tip Thursday

This one is for all those self employed and corporation owners out there! Today I have some tips for you that will not only produce better results, but also save you money in bookkeeping fees!

1. Keep Personal and Business Accounts Separate

This is the number 1 problem with many businesses relative to their bookkeeping!

Mixing your personal and business cash might not seem like a huge problem at first, but it is!

This separate account will make it easier for you and your bookkeeper to sort through the purchases and sales relevant to your business and save you a lot of time, effort, and money!

If you were a contractor and you got your lumber order to frame a house. As you were walking out the door of the store, they told you, we put red marks on some of the pieces of lumber, all in different spots. Only use the ones with the red marks and then separate the rest of the lumber and bring it back.

How easy would that be??? that is what it is like when you mix your personal and business transactions in 1 bank account!

2. Automate with Cloud-Based Accounting Software

We’re lucky to live in a time where cloud-based accounting software gives you as the business owner the power to access your business information whenever and wherever you want. Technology has made it possible to sort through piles of paperwork each month, check spreadsheets, and perform manual calculations.

Accounting software such as QBO can automate some of your processes for you such as invoicing, categorization of expenses, and even some aspects of payroll, but you need to be careful, it can create a HUGE mess as well!

3. Create an Easy-to-Follow Record Keeping System

Every transaction your business makes should be recorded and organized in a way that’s easy for you to maintain. Keeping track of all invoices, receipts, and expenses will help you predict future opportunities for your business and maintain tax compliance in the case of an audit. It will also help ensure you do not lose those valuable expenses once you have paid for them!

While there are easy ways to digitize your paper receipts, if you prefer to keep paper records, these should remain in a locked and secure cabinet somewhere and be organized into a simple system. It’s also best to have a backup of your records just in case something goes missing.

4. Set Reminders for Important Deadlines

You spend most of your time as a business owner running from one challenge to the next. With so much on your plate, it’s easy to lose track of when you should be paying GST, payroll, and regular business invoices. To avoid missing deadlines that could leave you with a fine or disgruntled partner, set reminders for yourself. You can do this with your email calendar online, or even your smartphone.

Even writing notes down for a few days before the deadlines can help keep you on track if you regularly check your physical calendar.

5. Build an Audit Trail

No matter how careful you are with your books, you could still end up with an audit. You must leave a trail of documentation that backs up everything you’ve purchased, and everything your customers have paid for.

An audit trail is essentially a selection of documents that prove the transactions recorded in your books are, in fact, true. Your audit trail will help you to retrace your steps if you have any issues with things like tax inaccuracies, source documents, or missing transactions.

6. Know Your Business Expenses

It’s difficult to predict what kind of expenses you will tackle when you start running your business, and what kind of costs are deductible.

Mixing business and personal accounts doesn’t mean that you can simply claim for everything you buy.

7. Create and Review Regular Reports

A good bookkeeping strategy isn’t just essential for tax purposes.

Keeping track of your incoming and outgoing cash makes it easy to perform regular financial check-ups. Keeping your bookkeeping up to date will allow you to ensure suppliers are getting paid on time, that YOU are getting paid on time, and that you are managing a profitable business!

I look at my bank account and financial statements almost every day! I look at my receivables and payables at least every month!

You have to stay on top of your business!

8. Track Cash Payments

It’s easy to forget about this when you first start building your business, but you need to record your cash payments too. Any cash received by the business needs to go into the business bank account before spending it – even on business products. It’s tempting to take the cash immediately to purchase supplies, but this can easily mess up your bookkeeping system.

When recording cash payments, remember to make a note of which customer paid, so you don’t chase them up again later. If you’re unsure how to manage the details of a cash payment on your accounting software, speak to a bookkeeper who can help you set it up and use it correctly.

9. Budget for Tax Payments

Few things are more wonderful than seeing that your business is making money.

Remember that a portion of your income must go towards tax expenses at the end of the year. You should be saving at least a part of all your income – perhaps 20% – to ensure that you have enough money left to pay your tax bills. If you struggle to keep this money in your business account, use a separate savings account.

10. Know the Basics

Many business owners think that they don’t have to learn about tax and accounting rules if they have a professional to manage their books. You might even feel that way if you have an automated accounting software solution. However, while these assets reduce your risk of having problems with your taxes, it’s best to be informed about your tax obligations.

Go online and read everything you might need to know for the type of business you run. Remember that registered companies have different rules for sole traders and partnerships. Consider whether you’re paying corporation tax, registered for GST, and other regular fees. Having a basic insight into how taxes work could save you from some severe penalties.

11. Outsource to a Professional

Cloud-based accounting systems make it sound like it is easy for business owners to handle their accounting without a lot of excess effort.

However, that is 100% categorically NOT TRUE!!!! My bookkeeper wants to shoot Danny Devito every time she sees the QBO commercials. It is NOT that easy!!! Bookkeeping is a profession, not something you learn on the fly or in a few hours.

Hire a bookkeeper, as you would a lawyer, accountant, marketing person, technology.

When your books are professionally organized with outsourced bookkeeping services, it is easy to make important business decisions as you have a clear picture of how your business is performing financially.

12. Make Your Books a Priority!

Finally, tracking your expenses might not be the most exciting part of running your business, but it does need to be a priority.

One mistake on a tax report or a poorly managed set of invoices in your bookkeeping records can throw your life into turmoil. From day one, make sure you have a strategy in place for keeping your books organized and up to date.

Although you don’t necessarily need to balance everything at the end of each working day, you should be sorting through your financial information at least once a month.

Book an appointment today to get started!

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.