You have registered your company. You have found the perfect and cozy place to serve your customers. You have hired your staff. You’ve stocked the shelves. You have set the signs. And now it’s open for business.
After a grueling period of working to launch your business, the dust has finally settled. Now what? While you can still afford to relax, and before you’re fully occupied with customer service, you can spend some time putting in place some housekeeping procedures to get things rolling as far as record-keeping is concerned.
Bank and credit card statements. For small businesses, bank and credit card statements serve as the cornerstone of record keeping. Therefore, it is imperative to keep these two accounts separate from your personal account.
- Corporate or business bank account
Open a separate bank account for your business. Use this for all business banking. Try to avoid using a personal account for business transactions, as this practice increases the risk of items being overlooked.
- Corporate or business credit card
Get a separate credit card to use exclusively for your business (it can be a personal card, but different from the card you use for personal transactions). Use the monthly statement as a way to track expenses supported by receipts with details of the expense (such as customer name, item description, etc.). Vouchers should be filed periodically in files, preferably by type of expense. This will facilitate bookkeeping based on monthly credit card statements.
Cash transactions. All items paid for in cash must be invoiced and receipts must be retained. Ideally, out-of-pocket or personally paid expenses should be summarized and funded by the business through an expense report. The form must show a detailed description of the expense. There should be separate envelopes or folders where items paid for in cash should be kept for easy bookkeeping.
Home office expenses. Personally paid items such as rent or home mortgage, interest, utilities, insurance, repairs, property taxes, condo fees, etc. must be counted or at least closely estimated to allow proper calculation of business use of housing/rental expenses. Home office space should be calculated at the start of the business.
Use of vehicles. Car usage should be tracked to identify and collect information on all business-related travel. You should be able to calculate/estimate the percentage of commercial use and the total kilometers driven.
Expenses related to the vehicle. All car expenses including loan interest, lease payment, car depreciation or capital cost allowance, gas, repairs, insurance license, CAA, etc. they are deductible expenses, but must be prorated based on the percentage of business use. Therefore, it is important to keep track of all the costs of car operations. Parking is generally 100% deductible.
Telephone and communication expenses. Long distance phone must be traced to assign claims. Separate bills for business phone line, cell phone, and Internet are deductible. Bills for residential phone lines are not claimable.
Document preservation. All source documents should be filed based on type of expense or vendor reference to facilitate location in case questions arise or if bank and credit card records are not sufficient. This does not need to be presented as a monthly breakdown; the annual presentation is fine.
Corporate year end. The determination of the tax year end for the corporation is flexible during the first year of operations, since the tax year end is not required to be preset until the first tax returns are filed. This decision depends on profitability and the possibility that income from employment or other sources will return to earnings in the near future.
Year-end of unincorporated entities. For sole proprietorships, freelancers and companies, it is a calendar year-end: December 31st. If you are an eligible individual, you may be able to use an alternate method of reporting your business income that allows you to use a tax period other than the end of the calendar year, but you will need to reconcile business income for this purpose. prosecutors. to calculate the amount to report on your year-end personal tax return.
corporate earnings. It makes sense to leave excess income in the corporation. Provides the opportunity to pay lower tax rates (approximately 15.5% for income eligible for the small business deduction, generally up to $500,000) on taxable income while it remains on the company’s books. Personal taxes will only be imposed and paid when the funds are actually paid to the owner(s) in the form of dividends and/or salary. The tax rates are designed to ensure equal taxation across different business structures (corporation, sole proprietorship, or partnership) so that the total of corporate taxes plus personal taxes never exceed regular personal taxes.
Incorporated versus unincorporated business structure. When deciding whether to incorporate or not to incorporate, from a tax point of view, one must take into account the possibility of short-term losses (which favors the unincorporated structure), size of the company, family ownership, division of income, planning Equity and Other Considerations.
End of year preparation. By using the above tips, accounting and bookkeeping costs can be minimized at the end of the year. Get your year-end documents organized as soon as possible. This will allow ample time to plan ahead and ensure that the total corporate and personal tax burden is minimized. This will also allow as much time as possible to plan for the use of recoverable taxes or ensure that the funds will be available to cover taxes due on the due date.