You have registered your company. You have found the perfect and welcoming place to serve your customers. You’ve hired your staff. You’ve stocked the shelves. You have posted the signs. And now it’s open for business.
After an exhausting 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 setting up some cleanup procedures to get things up and running when it comes to record keeping.
Bank and credit card statements. For small businesses, bank and credit card statements serve as a cornerstone for 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 commercial 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 accounting based on monthly credit card statements.
Cash transactions. All items paid for in cash must be billed and receipts must be kept. 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 to facilitate accounting.
Home office expenses. Personally paid items such as home rent or 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 trips. You should be able to calculate/estimate the percentage of commercial use and the total kilometers traveled.
Vehicle-related expenses. 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 according to 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 business phone line, cell phone, and Internet bills are deductible. Residential phone line bills are not claimable.
Conservation of documents. All source documents should be filed by type of expense or vendor reference for ease of location should questions arise or if bank and credit card records are insufficient. This does not need to be presented as a monthly breakdown; the annual presentation is fine.
Corporate year end. The determination of the end of the fiscal year for the corporation is flexible during the first year of operations, since it is not required to preset the end of the fiscal year 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 closing of unincorporated entities. For sole proprietorships, freelancers and companies, it is a calendar year end: December 31. If you are an eligible individual, you may be able to use an alternative 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 purposes tax. 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, typically up to $500,000) on taxable income while it remains on the business’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 wages. The tax rates are designed to ensure equitable taxation across different business structures (corporation, sole proprietorship, or partnership) so that the total of corporate plus personal taxes never exceeds regular personal taxes.
Incorporation versus unincorporated business structure. In deciding whether or not to incorporate, from a tax standpoint, the potential for short-term losses (which favors the unincorporated structure), business size, family ownership, division of income, estate planning, and Other considerations.
End of year preparation. By using the suggestions above, accounting and bookkeeping costs can be minimized at the end of the year. Organize your year-end documents as soon as possible. This will allow ample time to plan ahead and ensure the overall burden of corporate and personal taxes is minimized. This will also allow as much time as possible to plan for the use of recoverable taxes or ensure funds will be available to cover taxes due when they are due.
