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Fundamentals That Incorporated Businesses Should Never Ignore While Filing Taxes

Incorporated Businesses

An unincorporated business is one that does not have its own separate legal identity, like sole proprietorships or family trusts. Whereas, an incorporated business is the one that has its own separate legal identity. Incorporated businesses are formally recognized by the state and, their owners have limited liability. This means that the personal incomes are separated from the company’s revenue.

Many small incorporated businesses in Canada are managed by young entrepreneurs. Young entrepreneurs tend to manage everything themselves. However, filing taxes for an incorporated business is somewhat different from filing personal taxes. There are some basics that all business people should be aware of. If not, they can always seek professional assistance from tax experts or get corporate tax services.

Here are some fundamentals that all incorporated businesses should follow while filing T2 taxes,

  • Realizing Expenses
  • Accurately Reporting
  • Phantom Deductions
  • Hiring Professional Accountants

Realizing Expenses:

First of all, incorporated businesses can file T2 taxes six months after their business fiscal year ends. This highlights the time limit businesses have to file their corporate taxes. This makes it easy for small business owners to accurately check and realize their expenses.

Sometimes, business transactions take time to complete. Business owners do not recognize or record these as complete transactions, which confuses what to file. In such cases, where work has been completed and, the payment is due, the amount should still be filed on the T2 form. The pending amount should still be recognized as taxable income on an actual basis.

Accurately Reporting:

There are lots of transactions that take place while running a business. Most of them incur in form of capital expenditures. Capital expenditures should be recorded properly on all books for appropriate adjustments.

Most of the time, business owners tend to forget to report small purchases on books. Similarly, some deductions are also missed on books. This improper recording of daily transactions creates a lot of confusion and tax filing problems. Hence, it is very important to hire a dedicated bookkeeper for accurate reporting. The bookkeeper will be responsible to keep complete track of all invoices.

Phantom Deductions:

Phantom income is a complicated process and an uncommon occurrence. It arises when a business is liable to pay taxes on an income that it has not received cash for. According to Moody, phantom deductions do not exist. They say, either the transactions are not properly recorded or are missed. This occurs when young entrepreneurs are not quite sure what to record on their cash books and, they are confused between T1 and T2.

The corporate tax filing process is a bit complicated than personal tax filing. It requires professional help and accurate cash recording. Therefore, hiring expert yet affordable income tax services to manage your personal and corporate taxes is a wise option.

Hiring Professional Accountants:

The entire tax filing process is dependent upon accurate bookkeeping and accounting procedures. Although there are many online accounting programs available to assist small businesses, small business owners still make certain mistakes that create bigger tax filing issues. Therefore, hiring professional accountants is recommended to reduce additional stress.

Recognition of revenue is the most common mistake done by most entrepreneurs. Many business owners are not sure what to report as their taxable income. Furthermore, online accounting programs become more complex as the business grows. Hence, when a person is not trained at bookkeeping there are more chances of errors and missed entries. Therefore, hiring a tax expert is the most feasible option for all incorporated businesses.