Were you surprised by your tax bill this year? Small business owners, especially new ones, are often caught off guard by what they owe. Here’s how small business owners avoid a big tax bill by using strategies each month to get ready for April.
They take advantage of the extension
Although the filing deadline for most businesses and individuals is April 30, qualifying self-employed businesses can file by the 15th of June. Be very aware, however, that interest on what you owe is still assessed and charged by Canada Revenue Agency (CRA) from April 30. This extension can come in handy if you are waiting on payment from a large project.
They pay installments
Depending on how profitable your business is, you may be required by CRA to make installment payments. You can make these voluntarily, though, if you want to get a head start on your tax bill. Installment payments are due on the 15th of March, June, September, and December. If you are required to pay installments, CRA will issue you a letter letting you know how much is due by each deadline. At tax time, your installments are deducted from the amount owing.
They pay monthly
An easy way to avoid a big tax bill in April is to call up your bank and have CRA set up as a bill payment. Then, each month, simply send CRA some money. It will be applied to your CRA account and deducted from what you owe in April. Estimate how much tax you will owe and split the amount across 12 months to ensure you stay on top of the payments. You can use CRA’s online payroll deduction calculator to help you estimate your tax bill based on monthly earnings.
They save up
A high interest savings account is a great way to save for that tax bill in April, and also earn a bit of interest on the money you are saving. It takes some discipline to save a large sum of money and not dip into it on months when expenses are high and sales are slow, but it’s well worth it to avoid a big tax bill in April.
They hire an accounting service
Accounting firms are experts in helping small business owners avoid a big tax bill in April. Not only do accounting firms help small business owners get ready for tax season all year long, they ensure the business’ paperwork and finanical are always in order. Accounting firms point out where money can be better allocated, and advise on when installments are due, what deductions the company qualifies for, and more. Hiring an accounting firm allows the small business owner to relax and concentrate on running the business, knowing that the more “taxing” aspects of the financials are in good hands.
Don’t forget to pay on time!
Now that you know how small business owners avoid a big tax bill in April, don’t forget to pay your taxes on time. Failure to do so results in quickly escalating fees and penalties.
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