As we left off in the previous blog, a princess was stuck fighting a dragon. Or, rather, a small-business owner was fighting the CRA for a second chance at claiming deductions that her former accountant dropped the ball on. It’s more common a situation than you’d think, with more and more provinces facing CPA shortages in 2024.
We first examined pitfalls that small business owners may encounter, either due to a lack of experience or an abundance of anxiety. With those retrospectives out of the way, today, we’ll look forward with tax takeaways that will put you ahead of the curve in 2024 and beyond, even if your accountant drinks the wrong potion.
Oh, yes. There will be more references to The Princess Bride, too.
Tax & Deductible Preparation Tips
Takeaway #1: Organize, Organize, Organize!
A mountain of crumpled receipts, a labyrinth of spreadsheets, and a sea of unanswered emails from your accountant begging for clarification. Sound familiar? Don’t worry; you’re not alone. One of the most crucial aspects of surviving tax season is practicing relentless organization.
- First, keep your receipts in order. You know you’ll never do it later, so why pretend?
- Track your expenses diligently. This often means writing notes on everything.
- Feeling photographic? One option is to take photos of all your receipts and load them into a digital folder. You’ll never lose a receipt, put one through the wash, or be bombarded by messy papers in every nook and cranny of your vehicle.
- Lastly, for the love of all that’s deductible, gather your relevant documents before the last minute.
Even Miracle Max, played by the talented Billy Crystal, cannot help you if you don’t first help yourself.
Takeaway #2: Embrace Technology (Before It’s Too Late!)
Gone are the days of dusty filing cabinets and handwritten ledgers. We’re now entrenched (for better or worse) in the digital age, where software and apps can streamline your tax processes faster than you can say “deductible business lunch.”
From accounting software like QuickBooks to expense-tracking apps like Expensify, there’s a technological pairing for every tax-related task. By embracing these tools early on, you’ll save yourself countless headaches down the road, including duplicating records, having them cloud-accessible, and easily exporting them to transfer your business to a new accountant.
Takeaway #3: Understand Your Deductions (Because Every Penny Counts!)
Ah, deductions—the Princess Buttercup to your Wesley (or vice versa!)
Knowing which expenses are deductible might be challenging for an entrepreneur. My friend had a difficult time deciphering the legislation around her business to see what were allowable expenses and which were not. She ended up writing a year-long budget of types of expenses for everything she touches/does/uses and then sat with an accountant to categorize them by type.
In the end, each kind of expense got a different-coloured sticker on it, and they went into folders for each month. That’s her method—what will yours be? Knowing what’s what (and knowing it sooner) will help you see if you’re on track or if you’re going to have a tax bill, instead of a refund, waiting for you in April.
Cash Flow and Planning for Taxes
I won’t promise the moon with these tips. You don’t have to plan at all. You, like so many, can just wait and pay the tax bill at the end of the year. The problem there is that ten times out of ten, the CRA will often end up with a more significant owing that you might come to should you do your books yourself.
Playing wait-and-see is a surefire way to end up taking out a loan to pay the tax bill. In fact, I have written innumerable leases for customers who had to turn a piece of equipment they owned free and clear into ready cash to make their government payment in full.
I don’t know about you, but I’d rather not have the last-minute stress of juggling refinancing if the alternative could be focusing on the future.
This is where my bottom line barks at me, but the educator inside smiles. While I would love to write new business with you, I’d much prefer it were for growth reasons rather than paying the piper.
Ending Where We Began—Hiring a Small Business Accountant
If your business is complex or you don’t know where to start, start by asking for help. Consult with a tax professional if necessary (they’re like Yoda, a hero from a different story, but with spreadsheets), and maximize your deductions like a pro.
Technology and expertise can help you get this done without breaking a sweat. You don’t need to be an expert or outsource everything; simply educate yourself on the basics and coordinate with your CPA on how you can work together to make the most of their knowledge.
Conclusion
Not every story has the happiest of endings. My friend is (maybe) going to have a bill to pay, though, hopefully, smaller now that she is back in charge of her books. She has certainly learned a lesson that will pay dividends down the road. She (and hopefully you!) learned that an expert is a service provider—a kind of outsourced employee that still needs to be managed like one.
Above all, I recommend only going into the fire swamps if you know the traps leading to audits. Taking a bit of time to plan your path makes the trip fireproof. At worst, you escape a little smoky but otherwise intact.
Here’s where my mother’s voice often shows up in my head:
Fail to plan? Plan to fail.
As for you, we at Prime Capital are here to help you create cash-positive strategies that extend far past tax time. This year, that could be a new lease to ease the pain. Next year, growth… of your business, not rodents—we hope.
