Small Business Tax Return Myths
Over the years a number of tax myths have surfaced about filing small business tax returns. This is totally understandable; it’s difficult to keep up with the changes that take place in Canada’s complex tax system.
Not only can these tax myths make filing your taxes even more stressful, the misinformation and misunderstandings can mean less money in your pocket.
Below we debunk 5 popular tax myths.
- A Big Refund on a Tax Return Is Good
Wrong. Small business owners look forward to receiving a tax refund from the Canada Revenue Agency (CRA); according to the most recent data, the average Canadian tax refund is just over $1,700.
But a large tax refund just means you sent too much tax money to the CRA throughout the year. Not only did you not have use of that money, you loaned that money to the Canadian government, interest free.
The fact is, a big tax refund is a sign of poor tax planning. To make sure you’re getting the most out of your money, use an income tax consulting firm that specializes in helping small business owners and Canadian farmers.
- If You Can’t Pay Your Taxes, You Don’t Need to File on Time
If you don’t have the money to pay for any taxes owing, you should still file your taxes on time and pay later. That’s because the CRA imposes a 5% penalty for filing late.
The CRA also charges a 1% interest on the balance owning for each month that your tax return is late. It makes a lot more sense to file on time and pay later than file late and pay an extra 5% penalty.
- Home Office Deductions Will Get You Audited
One of the joys of working from home and having a small business is that you can deduct a number of expenses.
This can include a portion of your housing costs, including:
- Property Taxes
- Home Insurance
At the same time, some items you think should be tax deductible might not be. In other cases, you can only claim a portion of an expense. While you can’t write off all your expenses, legitimate home office deductions will not get you audited.
- A Charitable Donation Receipt I Forgot to Claim Is No Good
If you found a charitable donation receipt from 2 years ago that you never claimed, then you’re in luck.
In Canada, you can claim a charitable donation receipt going back 5 years. You should report all slips, but you don’t have to claim all of the charitable donations you made this year on your current tax return.
It might make more sense financially to carry your charitable donations forward and claim them on your tax return for one of the following 5 years.
- If You File Your Taxes by Mail, You’re Less Likely to Get Audited
There is no evidence to suggest that mailing in a hard copy of your annual taxes helps you avoid getting audited. In fact, mailing in a hard copy will make you stand out.
According to the CRA, 80% of individual returns were filed electronically for the 2014 tax season. An even higher 83% of Canadian businesses filed electronically for 2013-2014.
During that tax year, the CRA conducted 167,441 audits. Of those, GST/HST is the most common form of audit followed by small and medium-sized businesses.
The best way to ensure your taxes get processed in a timely fashion is to use tax experts with decades of experience working with small business tax and agribusiness tax issues.
FBC, Helping Small Businesses Owners Prepare Their Taxes
FBC helps small business and agribusiness owners clarify the tax myths and ensure they’re minimizing their tax burden and maximizing their assets. Since 1952, the experts at FBC have worked exclusively with Canadian small business owners and farmers, helping them with all their tax planning needs.
For more information on FBC, call us today at 1-800-265-1002, or submit an online form and an FBC tax specialist will contact you at your earliest convenience.