Income tax returns for sole proprietorships and partnerships

Sole ProprietorshipAs part of your small business accounting, you are required to file the income tax return every year. Filing your sole proprietorship or partnership business income tax return in Canada is done on T1 income tax form. This is the same form used in filing personal income taxes. By completing and filing the form, you are declaring all your income, whether it is from a job or business.
You will need to gather all the papers that you need to start the process. They include:

  • The business number
  • Your social insurance number
  • Business and professional income guide from Canada revenue agency
  • Business records with totals for sales, business expenses and cost of goods sold.

Completing the form:

  1. Fill the first section, which is the identification section
  2. Fill form T2125: Statement of Business or Professional Activities. This will enable you to calculate the business income. This form is included with the income tax form.
  3. Get your business’s industry code from the appendix of Business and Professional Income Guide.
  4. Fill the income and expenses parts on form T2125. For a partnership, you should fill the sections of partner’s details and the section for claiming amounts deductible from your share of partnership income. The form contains information to assist in calculating business expenses. This includes charts on calculating the motor vehicle expenses to claim, sections for calculating capital cost allowance to claim and a section for calculating business- use -of -home expenses if your business is home based.
  5. On the section of Total Income on the T1 income tax return form, go to the subsection for self-employment income and fill in your gross or net business income, professional or commission income. Enter your other income such as employment income on the Total income section.
  6. Fill the rest of the T1 income tax return form.

Once the form is complete, double check for accuracy prior to filing. The income tax may be filed prior to June 15th, 2015 without penalty. Interest on unpaid taxes will accrue from April 30th, 2015.

Remember, we’re always here to assist you! Contact Five Star Accounting, Winnipeg’s leading accounting and bookkeeping firm.

Do You Know Your Accounting Policies and Procedures?

Do you know your businesses’ accounting policies and procedures?  Are they optimized for your specific type of business, and your operations individual needs?

If you were audited tomorrow, would your books stand up to Federal scrutiny?

Did you just break out in a cold sweat at the thought of a bunch of  “Revenooers” poring over your records, looking for inconsistencies?  If you did, it’s because you’re too busy running your business to spend your every waking moment fussing over your books.  Small businesses are the engine that drives the economy, but they are also the operations that are exposed to the greatest amount of risk.  As an entrepreneur, you are to be commended for your courage.  At Five Star Accounting, we completely understand the needs of small businesses in Winnipeg and Calgary.  We represent numerous small businesses in Winnipeg and Calgary.  We ourselves are a small business, with offices in (you guessed it) Winnipeg and Calgary.

Let our experience work for you.  We have the knowledge (kept current because we endeavor to be the best-educated accountants and bookkeepers you’ve ever met) and the experience to put your business finances in order.  We will help you set up a record keeping method that is easy to maintain, and that follows the best practices that we’ve established for all of our clients.  Once we’ve got you up and running, we’ll help you keep your accounting records up to date, so you can sleep comfortably at night knowing that your business’ books are completely in order.

We offer all the advantages of an in-house bookkeeper, without the added cost of another full-time employee.  For support with your accounting and bookkeeping needs, both in strategic planning and day-to-day support, contact Five Star Accounting, and experience our professional service and our personal touch.

Accepting Credit Cards Can Save You Money

Cash used to be king.

Today’s customer, however, rarely has more than a few dollars in his or her wallet.  Interac debit cards, as well as a wide variety of credit cards (most of them bearing the Visa or MasterCard logo) have replaced the wad of money that used to be in most Canadians’ billfolds.

Customers love the convenience the get when paying by plastic – it’s more secure than carrying around a week’s supply of cash, and all of their record keeping is done automatically – they can keep track of each and every purchase they make, down to the last penny.  If they’re careful consumers, the added convenience doesn’t cost them a penny.

As a small business, however, it does cost you.  Credit card companies and banks are offering convenience to their customers for free, and charging you a usage fee.  Many businesses hold out until they can no longer justify not accepting credit and debit cards, and then are pleasantly surprised when the finally do.  Here are some of the advantages of accepting credit and debit payments for your business:

  1. Increased revenue level.  Anytime you turn a customer away because you have a “cash only” policy, you’ll not only lose that single sale, but there’s a good chance they won’t be back.  Lost opportunities add up!
  2. Reduced collection costs.  If you extend credit to your customers, or you accept personal cheques, you will have a certain amount of delinquency.  Debit/Credit cards are authorized at the time of purchase, so you won’t be chasing people for money.
  3. Easy Recurrent Payments.  If you bill your customers periodically, setting up a pre-authorized payment plan will increase convenience for them, and make it easier to retain clients over the long haul.

In the 21st Century, debit and credit payment options aren’t going to go away anytime soon.  Accepting the forms of payment that your customers prefer is a must, even if the usage fees are a little daunting.

What Revenue Level Dictates Outsourcing?

When will your business be making enough money to justify outsourcing some of the things you don’t want to do, or don’t do as well as someone more qualified could?

Our answer, when it comes to accounting and bookkeeping, is right from the get-go.  And we don’t say that just because we’re accountants and want to get paid.  We have years of experience in the small business marketplace.  We’ve seen firsthand the advantages that a small business that’s financially informed has, and we’ve also had to do some serious clean up work when we’ve gotten that call too late in the game.

Professional accountants have knowledge and tools that can make every stage of business growth easier.  We can do financial projections that can be instrumental in creating the initial business plan, and we can help when it comes to convincing lenders that your plan is solid.

Accountants know how to deal with the government.  In the start-up phase, you’ll be providing all kinds of compliance documents, which can be confusing and time-consuming for the uninitiated.  We spend a great deal of time learning how to navigate the legal landscape surrounding small businesses, and can put this knowledge to work for you.

Once your business is up and running, accounting and bookkeeping services will keep your cash flow flowing, your payroll paid, and your finger on the financial pulse of your business.  And, since you’ve outsourced the work, your hands will be free to do the thing you set out to do in the first place – build your business.

At Five Star Accounting, we know what it’s like being a small business in Winnipeg.  Besides fitting into that category ourselves, we have many years of experience in the field.  We know that the economy needs small businesses. Wherever you are in your business trajectory, from initial concept to full-blown operation, you can count on Five Star Accounting to provide professional accounting and bookkeeping support.  It’s never too early to get the help of a professional accountant, but it can be too late.

There’s Money to be Saved

Generally, the fewer employees a business has, the more hats each one has to wear. A truly small start-up, with only a few employees, can be a very stressful place to work.

When you’re responsible for every little thing that happens in your business, it’s easy to lose sight of the bigger ones.  We call it losing the forest in the trees.

When it comes to the financial health of your business, as an involved owner you feel a responsibility to your business, your customers, your employees, and your family to do the best you can.  After all, livelihoods depend on your ability to stay afloat.

One of the things that you’re tasked with, when your business is small, is cost control.  You have to determine, much of the time by instinct, which supplies and services are needs versus those that fall in to the category of wants.

The services of an accountant or bookkeeper almost always count as needs.  Some tasks you can perform yourself, but at great cost of time (and, if you’re like many people, sanity), and others simply require the expertise of a financial professional.

At Five Star Accounting, we have years of experience in the small business environment. We’re well versed in Canadian tax regulations, and we’re passionate about what we do.  Many business owners see bookkeeping and accounting tasks as punishment.  They’re our whole reason for existing.  We can save your business money because we know our way around cash management, payroll administration, and accounts receivable and payable.  We can help you navigate the stressful waters of business accounting, saving you money and freeing up your time to focus on the things that are important to your business.  Like your business.

Small businesses like yours are the engine that drives the economy, here in Winnipeg and across Canada.  For advice and help with accounting and bookkeeping that you can trust, contact Five Star Accounting for professional service with a personal touch.

Unification of Canada’s Accounting Bodies

On October 1st, 2014, CPA Canada announced the consolidation of three national accounting organizations.

The Society of Management Accountants of Canada, Certified General Accountants Association of Canada and the Canadian Institute of Chartered Accountants have now merged into CPA Canada.

CPA Canada represents the single national accounting body and one of the largest in the world. The creation of this organization provides Canadian professional accountants with a unified voice.

This merger took a number of years as it required approvals from 40 accounting bodies across the provinces and territories. An interesting and little known fact, it also required approval in Bermuda as accountants there are regulated under Canadian standards.

Canada has had three different accounting designations for more than a century, sometimes creating confusion in the marketplace. Companies didn’t know if they needed a CMA, a CGA or a CA or which could deliver the services they required. Businesses will now have the confidence of knowing all CPAs will be well-rounded professional with a strong foundation of knowledge and skill as a professional accountant.

If you have questions on this new designation and how it may benefit you, please contact us. We’d be happy to explain.

New Penalties for Using Technology to Hide Sales Revenue

In January of 2014, the Federal government introduced new legislation to fight the use of Electronic Sales Suppression (ESS) Devices that unscrupulous business operators are using to falsify sales records.

Misrepresentation of income when filing taxes is certainly nothing new.  Shady business operators have been “open tilling” and running multiple cash register tapes for years.  And many of them got caught.  The CRA has developed sophisticated techniques for pinpointing fraudulent submissions, and has been quick to prosecute cheats.  New technology has brought new ways for criminals to try and defraud the government.

What is ESS?

ESS uses electronic devices (“zappers”) or software (“phantomware”) to amend sales records on the fly.  When a business makes a submission of their revenue to the government, the numbers make sense, because the computer has been able to accurately compensate for the missing revenue.

The ease with which ESS creates fraudulent records that look genuine means that a lot more business owners have been tempted by it.  Taxation authorities worldwide are citing ESS as a major threat to government revenue streams.  Many jurisdictions are working hard to counter ESS technology with POS system inspections, and in Quebec business operators are required to plug an independent record-keeping device into their sales systems.

Penalties

Under the new legislation, business operators caught with ESS hardware or software on their systems will be fined $5,000 on their first offence, and $50,000 for any subsequent infractions (even if not using it).  Individuals offering the software for sale are subject to much higher fines.

The best way to ensure that you and your business aren’t subject to problems with zappers or phantomware is to ensure that you aren’t using it.  Make sure the people you entrust with installation and maintenance of your POS systems are reputable. When it comes time to report your income, consult a professional.  The accountants at Five Star Accounting provide knowledgeable service, and can help you unsnarl even the most complicated revenue reporting situations.

Paying Yourself – Small Businesses in Canada

Most small businesses are just that – small.  Many entrepreneurs start operations with just themselves as principals, and do so as a way to make money while controlling their own destiny.  One of the most confusing challenges that face new business owners is the question of paying themselves – there are a number of ways to set up your business, and each has it’s own advantages and disadvantages.

Types of Businesses

The Canada Revenue Agency defines a business as “a profession, calling, trade, manufacture, undertaking of any kind whatever or an adventure or concern in the nature of trade.”  The business must be entered into with the intention of making a profit, and there must be evidence to this effect.

Sole Proprietorships

An operation with only one worker, the principal, is called a “sole proprietorship”.  Sole proprietors report all of the profits of their undertakings (after deduction of costs, which can include all money spent in the operation of the business) as personal income, and are taxed accordingly.

Partnerships

Small businesses with more than one principal, who share in the expenses and profits, are referred to as “partnerships”.  Each partner is responsible for reporting their portion of profits and expenses on their personal tax returns. The business itself doesn’t file a return with the CRA.

Corporations

Businesses that are incorporated, on the other hand, are legal entities that file their own taxes.  In the case of incorporation, business owners can be employees of the corporation, and collect a paycheque (subject to the same advantages and disadvantages as being employed anywhere), or can elect to receive compensation in the form of dividends.  There are several factors that determine which way you should choose to be paid by a corporation in which you are a principal, most of them centering around deductions of the CPP.

Whichever way you choose to go, know that Canada’s Western Provinces are a hotbed of small business activity, and that they truly are the engine that drives the economy.  For solid advice and help with accounting and bookkeeping, contact Five Star Accounting for professional service with a personal touch.

What Constitutes a Business Expense?

The Canada Revenue Agency very clearly lays out the rules for business expenses.  Most simply put, a business expense is anything that your business paid for that can be considered a “cost” that is paid in order for your business to earn income.  Eligible business expenses are then deducted or “written off” of the businesses profit, so that income tax doesn’t need to be paid on them.

What are tax deductions?

The CRA has a very detailed list of appropriate expenses, which you must consult before considering deducting from your business income.  If you operate your business from your home, you can deduct a portion of your home costs proportional to the space used for operation of your business.  You may deduct advertising, bad debts, postage, and a whole host of other costs directly related to the earning of business income.

Many business owners try to stretch the definition of a business expense.  Because you are allowed to deduct meals and entertainment expenses, and travel costs, they will submit personal receipts assuming that the Canada Revenue Agency will be unable to tell the difference.

The government has a lot of experience with business deductions, and a large number of the people employed by the CRA are tasked with sniffing out deductions that are less than genuine. The rules concerning documentation around entertainment, travel, food, and vehicle expenses are quite strict.  If you bend the rules, you are very likely to be caught.

Our advice to you? Ensure that your deductions are in compliance, and keep careful records.  Ask yourself, before including an expense on your tax return if it would withstand the scrutiny of an audit.

To avoid confusion, enlist the help of Five Star Accounting for help in preparing business taxes so you can maximize allowable deductions while avoiding the stress of improperly submitted expenses.