For Canadian small business owners, a new year can be the fresh start needed to prepare for a stress-free tax season.
Wondering when the best time to change your accounting software is? Perhaps your business is outgrowing your current accounting process, and you need to have a hard look at tools that can help you organize more and spend less time doing so. Maybe you’re using software that performs basic accounting functions, but you’re starting to realize its limitations as your clients and workload become more complex.
Whether you’ve laid down the groundwork and researched solutions, or are still in the early stages of considering a change—how do you know when the best time is to switch?
In many ways, February is the calm before the storm, where many small business owners are in the thick of their tax prep and are getting their ducks in a row. While income for the previous year must be organized, this time of year is also when businesses and accountants start fresh by tracking their income and expenses for the new year.
Getting ready to file taxes shouldn’t be a challenge when you’re organized and have a sound system in place. If you aren’t as organized as you wanted to be this year, there’s no better time to plan ahead and make changes.
Although the coming weeks are sure to be stressful for some, what if it could also be an opportunity to use this time to plan your next tax season to be an easy, stress-free experience?
The Perfect Time to Automate Your Accounting
Let’s face it, most invoicing and accounting software solutions aren’t user-friendly, don’t have the tools you need, and don’t actually make it easier to run your business. They certainly don’t make tax time any easier either, especially when you are trying to match the correct forms and categorize your expenses with rigid software.
Refreshingly, FreshBooks walks the walk with intuitive and easy-to-use features and tools. Imagine a world where your accounting software feels tailored to your personal needs and is so easy to use that your past anxieties with tax time disappear. Instead, you feel in complete control and know exactly where all of your financials are. You’ve now become an efficient tax prep machine, you look professional, and you save tons of time that you can directly pour back into serving your clients.
This time of year is also great to ensure you’ve recorded all deductible expenses and tracked your various income categories. If you traditionally wait until the end of the month or the end of the year to record expenses, you should seriously consider making a plan to record them as they occur in the coming year. Doing it as you go is more accurate and saves time in the long run.
With FreshBooks, you can organize and categorize them as you go in order to prepare for tax filing. For example, all the meals you ordered last year will be categorized as “Restaurants/Dining” under “Meals & Entertainment.” The default categories in FreshBooks are tax-friendly, so they’ll correspond with what you need to use when filing your taxes.
You can save yourself the last-minute scramble next year—stay on top of categorization by setting up categorization rules. This means FreshBooks will automatically categorize new expenses imported from your bank account.
Run Your Reports Ahead of Schedule
If your records are in spreadsheets or on paper, it can be time-consuming and frustrating to figure out who needs one of these informational returns and how much you paid them. But when your data is in the cloud, it’s as simple as running a report.
A Profit and Loss report is the primary accounting report you will use when preparing your taxes. If you are a cash-basis taxpayer, meaning you pay taxes on income when it’s received and deduct expenses when they’re paid, make sure you run the report based on income collected rather than income billed.
Before you send that report off to your tax pro or start preparing your own return, now is a great time to assess the numbers in your Profit and Loss report ahead of time. Did your income in any one month look unusually high or low? If so, make sure you didn’t accidentally record income twice, or forget to record a receipt.
Stay Organized and Avoid the Tax Season Rush
By this time of year, you should be familiar with the tax documents and forms you’ll need to have in place alongside your transactions and reports. It’s a great idea to keep these documents saved and backed up to ensure nothing gets misplaced. For those small businesses with employees, the T2200 form for example is crucial if your employees want to deduct eligible employment expenses from their taxable income and lower their tax liability.
They’ll need to present this to the Canada Revenue Agency (CRA) to prove that their various deductible expenses are indeed work-related and approved by you. Because there isn’t an actual filing deadline for Form T2200, it can be completed at any time of the year. But to make things easier for everyone involved, most business owners tend to send this form to employees with their T4s before February 28th.
It’s worthwhile creating a designated place to collect tax records and other financial documents throughout the year. Searching for misplaced files and records can be stressful and makes tax season more difficult than it needs to be. As you go through this process, you might realize that you didn’t do the best job staying organized last year. If so, it’s an excellent time to resolve to do better this time around.
Tax season doesn’t have to be taxing. Getting a head start now can save you a ton of time later, help you avoid last-minute scrambles, and even avoid expensive mistakes. Starting your process now with the right tools will ensure you’re filing correctly and claiming all the deductions you’re entitled to.