The following piece is an interview with Samantha Richardson, a CPA and writer based in Toronto who uses Wave with her small business clients.
I never thought I’d say this before working at Wave, but I love talking to tax experts. There’s something really empowering about taking the time to understand taxes, and getting the inside scoop from an expert.
The other day I asked Samantha Richardson—a CPA and writer based in Toronto—to share some common tax mistakes small business owners make. She kicked off the conversation with a pretty interesting observation:
“People are always worrying about the wrong things, and that’s where they get into trouble.”
What followed was a great conversation that helped me get to the bottom of what really matters when it comes time to file taxes. Spoiler: it doesn’t have to be so scary.
Don’t be afraid of tax agents
Me: Can you explain a bit more about the gap between what people worry about versus what they should worry about?
There are a couple of things in particular that people fixate on that are really not such a big deal.
The first one is getting audited. Yes, it’s scary, and yes, you do need to take it seriously. But, if you keep accurate records and you’re honest when you file your taxes, you don’t really need to stress about an audit.
If you get a letter in the mail, you just have to give the government what they want. It’s nothing to lose sleep over—they’re not coming after you with pitchforks! They’re generally understanding, as long as you can show that you have a system and you’re keeping good records.
The second thing is that people are afraid to talk to tax officials. Sticking your head in the sand when you know there’s a problem is only going to compound your issues with the tax office. You can actually avoid most potential problems by calling your tax office and asking for help in resolving it.
Don’t pay late or be disorganized
Me: There’s sort of a cult of fear around tax agents that makes people want to avoid them at all cost, so it’s good to remember that they understand. What are some things that people don’t worry about enough?
It seems obvious, but you have to make sure you pay your income and payroll taxes when they’re due. Not only will you get hit with penalties when you miss a payment, the government will flag you as a problematic taxpayer. If you’re constantly late on paying your taxes, they’re far less likely to go easy on you if you ever get audited, or need to make a payment plan.
Another thing that really does matter is keeping things organized. A folder or software system where 90-100% of your tax receipts are properly filed will give any tax agent the warm and fuzzy feels.
If they ever do audit your books, they’ll be a lot more understanding of one or two missing receipts if they see you’ve made an effort to keep things organized. It gives them confidence that you’re not just making up numbers out of thin air.
You also need to understand your cash flow and seasonal cash influx cycles. All businesses and industries have periods where it feels like it’s raining money, and others that are as dry as the Sahara.
Knowing when your low season will happen means you can send instalments to the government when you have the funds available, instead of scrambling for money at the end of the year. It also helps you forecast and plan ahead for year end.
Do stay on top of how your business is performing
Me: It’s easy to see how people can get caught up with so much going on and fall into this trap. Do you have any advice to help people minimize stress leading up to and during tax time?
Know your numbers. Keep your books up to date. This will help you forecast what your profit will be at the end of the year. If you multiply your forecasted profit by 30%, you’ll have a good estimate of how much tax you’re going to owe. Now make a plan to pay that—in instalments if necessary—to the government before your taxes are due.
If you’re consistently late on payments, you’re just throwing your money out the window because the penalties can be steep and harsh. If you’re the kind of person who gets nauseous just thinking about taxes, you need to hire a bookkeeper and an accountant to help you. Avoiding taxes doesn’t make them go away, it just makes the problem worse.
Want some more tips on how to organize your books for year end? Check out our post on tackling year end like a boss.
The information and tips shared on this blog are meant to be used as learning and personal development tools as you launch, run and grow your business. While a good place to start, these articles should not take the place of personalized advice from professionals. As our lawyers would say: “All content on Wave’s blog is intended for informational purposes only. It should not be considered legal or financial advice.” Additionally, Wave is the legal copyright holder of all materials on the blog, and others cannot re-use or publish it without our written consent.