Starting Up Your Own Small Business?
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Accounting - Beyond the Tax Return - By Brenda Parker
It's a sunny spring day and you jump out of bed with lots of energy to get the yard work done and prepare for the warm season ahead. You sit down for breakfast to enjoy the fresh eggs and the delicious maple syrup on your pancakes from the farm down the road. You rush out the door, grabbing your rake on the way by. You notice the broken handle on it and realize that you'll need to take a little detour to Tom's hardware store down the road. Your wife then yells out the door. There's no water! A plumber is needed immediately. Step back for a moment. Look at how much we depend on others to help us through the day, the plumber, the hardware store owner and the farmer. They are small business owners, three of an estimated 3,000,000 small businesses in Canada. A business with one owner may chose to operate as a sole proprietorship or if there are two or more owners, a partnership. Alternatively, the owner(s) may incorporate. No legal structure is inherently better than the other. The best choice depends on various factors and the circumstances. A business will often begin as a proprietorship or partnership, and then incorporate at a later stage.
Proprietors have more issues to consider in preparing their tax returns than employees, investors and pensioners. The focus should be on family planning since business income is an easier type of income to split than income from other sources. In order to be able to claim expenses and not have it viewed as a "hobby", the business must have the potential to generate profit. It is recommended that when you start a business, you should carefully lay out you plans on paper. Keep a journal about your thoughts on advertising, opportunities in the market, pricing, financing, etc. Be able to show that you honestly feel that the business will generate a profit for you in case this is challenged down the road. Even the best planned intentions can go wrong, but at least a well laid out plan will express what you thoughts were.
When starting your business, try to set up a separate bank account from your personal account. If it is audited by CRA, you will be showing them your business transactions only and not having you personal affairs mixed in there too. Also, auditors remain happier when the audit trail is clean and clear. It leads to less headaches. It is important from day one to have a proper accounting system set up. Your business may be small enough that a manual ledger will suffice. However, as your business grows, you may find that a lot of your time is consumed with running the business and your time to record the transactions is less. Many sole proprietors use computer based software such as Simply Accounting or QuickBooks to maintain a proper ledger. These programs are relatively inexpensive and will generate useful information for you to help monitor and plan your business, just as long as the input is done correctly. It is important to speak to a qualified accounting professional when planning your accounting system. What comes out of the program is only useful if it is entered properly.
Sole proprietors report their income on their personal T-1 return each year. When most people are scrambling to get their returns in by midnight on April 30, sole proprietors and their spouses have a time extension. Although they are still subject to interest being charged on what they owe at April 30, their return is not due until June 15th. Penalties are charged after that date. If June 15th falls on the weekend, as is the case this year, the return is due on the next business day.
So, get back to your yard work and enjoy the upcoming season. Support the businesses in your neighborhood and they'll be there when you need them.
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Accounting - Beyond the Tax Return - By Brenda Parker
About the Author: Brenda Parker
RSS for Brenda's articles - Visit Brenda's website
Brenda Parker operates Scotia Accounting and Tax Services located in Stellarton, NS, Canada. After graduating summa cum laude from St. Mary's University in Halifax with a B Comm in Finance and a BA in Economics, she worked for a national grocery firm in various departments with her last role being assistant manager of Taxation. During this time she attained her Certified General Accountant's designation. Since getting her CGA, she has worked in various management/accounting positions for government ,public accounting firms, and as controller of a regional hotel chain and a new car dealership. She is a Simply Accounting Certified Consultant and Quickbooks partner. In her accounting practice she has served both large and small clients in a wide variety of sectors. From personal taxes to businesses in manufacturing, wholesale, retail and services to charities and not-for-profit organizations. She has clients from Cape Breton Island, NS to Montreal, Quebec to Calgary, Alberta and in many locations in mainland NS. All information in her articles is offered without prejudice and she advises readers to consult a professional accountant in person in regards to their personal situations.
Click here to visit Brenda's website.
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