I want to share with you some easy and effective tax tips for women entrepreneurs.
As a small business owner, you may find yourself with many tasks on your plate. You are called upon to become a master of all trades and the CEO of your business. If your motivation is creativity and design, the last thing you want to be concerned with is bookkeeping and numbers.
I totally get it. I am a numbers person, and I find it a challenge to be imaginative and think outside the box. But there are days when I am called upon to do so and sometimes, I surprise myself.
Rising to the challenge and tackling tasks outside of our usual skillset can be some of the most rewarding experiences. So, if spreadsheets make you want to crawl back under the covers and sleep for the rest of the day, I am here to inspire you to think inside the box on this one. Good record-keeping is key to a business’s success and to your peace of mind. Laying the groundwork for a simple and reliable accounting system will offer efficiency and satisfaction to your process and create the foundations needed for growth in your business.
First off, grab a cup of your favorite warm drink … a Starbuck’s caramel macchiato (my personal favourite), a chai tea, or a nice warm hot chocolate and a fresh piece of paper or keep this digital on your laptop.
Let’s start with a list of financial to-dos:
- Set up a business bank account.
This will allow you to keep your business and personal expenses and income separate and get your record-keeping efforts off in the right direction. The fees can be higher than a personal account, but they are tax-deductible. Shop around as there are a lot of different solutions and you can choose one that best fits your specific business needs. - Choose an accounting software.
Quicken is maybe the most popular, but there are a lot of choices out there and you should decide which one best suits your business model. Do some research on this and find out what your fellow entrepreneurs are using and why. (*Note: Tracy Smith, Founder of Kitchen Table CEOs uses Freshbooks and loves it.) - Create an accessible space for your documents.
Anything you record in your software as business expenses must have a backup in case the CRA (Canada Revenue Agency) comes knocking. We are now living in a digital world where you may decide to keep everything protected in the cloud or you may prefer the old-school way of hard copies in a drawer. In either case, creating a filing system that is easy to manage will save you time and aggravation if you ever find yourself in an audit. A good template (in Canada) to use comes right from the T2125 (Business Income Statement) of your tax return. File by the categories listed on this form to make the transfer of and access to data at tax time that much easier. - TAX TIP: Keep a record of …
- Invoices
- Receipts
- Payroll records
- Billing statements
- Bank and credit card statements
- Tax returns
- GST/HST Filings (Canada)
- GST/HST – to register or not to register? That is the question.
In Canada, a small business must register for a sales tax number when they sell more than $30,000 in taxable sales, leases, or supplies over any 4 consecutive quarters. But even if you do not have to register, it may make sense to do it anyhow. Why? Because of something called ITCs or Input Tax Credits.
More to come on that later. Once registered, you will display your GST/HST number on sales invoices and charge GST/HST to your customers. The money you receive in GST/HST is not yours, you are collecting it on behalf of the government. You are their collection agent in a sense. But wait, why would you do their work for free? Because they said so. 😢
However, they do recognize the burden and want to incent you to do this job for them. They do that by offering you Input Tax Credits. This means that any business expenses related to your sales that you paid GST/HST on can be credited back to you.
When a business is starting out, you typically have extra expenses, and this may be a good time to take advantage of this. Often, that is why some businesses choose to register before they must. Other reasons include keeping it secret that your business is earning less than $30,000 over 4 quarters. Businesses that do not charge sales tax are advertising just how small they are, and some customers may feel you are too small for them.
Let’s look at an example of our tax tips at work:
Sandy, a female entrepreneur, has a pet grooming business that charges $50 per grooming. She completes 2 grooms per day or 40 per month. Sandy is in Ontario, Canada and has registered for her GST/HST number. She is adding $6.50 to every grooming to collect the 13% sales tax for the government. She tracks this HST in her accounting software.
Annually:
- Revenue = $24,000 .. paid to Sandy, for Sandy
- HST on Revenue = $3,120 … paid to Sandy, for CRA
- Taxable Expenses = ($4,800) … shampoos, grooming supplies, cleaning supplies etc. paid by Sandy
- HST on Expenses = ($624) …paid by Sandy, reimbursable by CRA
When Sandy files her HST return she will have to give $2,496 ($3,120 -$624) to the government. She will be able to keep $624 of what she collected on their behalf because of the sales tax she paid on the expenses to run her business.
Although her annual revenue is only $24,000 and she does not have to register for the GST/HST number, by doing so she is able to claim these sales tax credits. If she had a lot of business start-up costs and had her GST number at that time, she would be able to recoup all the sales tax spent on those items.
You can register online, by phone, or by mail. If you do not yet have a Business Number, it will take you through the process of registering for that as well. To register online you can follow this link.
Sit back and enjoy the rewards of organized record keeping. By tracking all your income and expenses, you are able to produce reports that illustrate your profit margins. This will show earnings trends in seconds.
This data can be a powerful driver for how you position your business from one year to the next. Knowledge is power. Knowing the numbers behind your business’s success will enable you to resolve challenges and make good decisions.
Other Resources:
If you enjoyed this article all about tax tips for women entrepreneurs, read all about how you can be more involved in your family’s finances by reading THIS ARTICLE.
About the Author:
Tracey Hough, Head of Business Development at IA Private Wealth Inc, is an insurance advisor with Braestone Family Wealth. Alongside her team, she looks after the insurance, estate planning, and tax analysis for over 250 families in the Newmarket and surrounding areas. Tracey’s goal is to mitigate client risk and identify tax issues to give clients peace of mind knowing their medium and long-term needs are being addressed.
This information has been prepared by Tracey Hough who is an Insurance Advisor for IA Private Wealth Insurance and does not necessarily reflect the opinion of IA Private Wealth Insurance. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy.
Insurance products are provided through iA Private Wealth Insurance, which is a trade name of PPI Management Inc. Only products and services offered through iA Private Wealth Inc. are covered by the Canadian Investor Protection Fund.
