Being your own boss comes with a lot of perks: freedom, flexibility, virtually unlimited income potential. But it can also send even the best of us into a stress spiral. So, just like a financial plan can set you up to succeed in the future, having a plan for tackling your taxes is key to minimizing panic and maximizing savings.
Streamline your tax season with these three tips:
After you finish filing your taxes, it’s tempting to start the same cycle of shoving your receipts in a shoebox and not thinking about them until April rolls around again. But, as with any kind of procrastination, this approach only sets future-you up to fail.
Find what works for you and focus on creating good habits all year. If you need help, engage with an accountant or bookkeeper early and meet with them periodically to check in and hold you accountable… no pun intended.
One thing that you can do as you go is organizing and managing your paper documents and receipts. Some people find it helpful to set aside a little time each day to digitize and sort their receipts, other people schedule in a regular slot each week to make sure they’re organized. Whatever works best for you is fine, as long as you build the habit.
This one may sound obvious, but it’s easy to forget–especially when you’re just starting your business. Ideally, you should have separate business and personal bank accounts, but, even if you don’t, you should still practice good financial hygiene.
As a self-employed professional or small business owner, you’re entitled to deductions on business expenses. While it can be annoying to keep receipts and records for all those purchases, it can get you hundreds of dollars in deductions. Whatever system you use to store your financial documents, be sure you’re separating out those receipts–bonus points if you add notes to remind yourself what the purchase was for.
Tip: The first step to separating your expenses is knowing what even qualifies as a business expense. You might be missing out on tax deductions that you didn’t know existed! For example, you might be eligible to claim a percentage of costs from your utility bills if you have a home office. Learn about other expenses you can claim here.
I know, I know, we just said that different systems work for different people. But digitizing paper documents (like bills and receipts) should be part of any audit-proof system. The CRA accepts digital copies of records as long as they’re “accessible and readable”, and digital methods are both more secure and convenient. Trust us, you’ll be glad to have those files on hand if you ever get audited.
Small businesses and cash-dependant businesses are more likely to be audited (as in, 7-8X more likely), and audits can come years after filing. Paper receipts are printed on delicate thermal paper, and are prone to fade long before the audit-window closes. Not to mention, years and years of records can pile up real quick. Digitizing your documents saves space and makes it easy to find records years down the road.
Doing your taxes is probably never going to be fun, but taking smart steps throughout the year can make it a little less painful. For other tips and tricks for self-employed professionals and small business owners, visit Sensibill’s blog.
Sensibill is a Toronto-based FinTech that allows individuals to easily access receipts directly from their bank accounts.