Edmonton Small Business Accountant | How To Eliminate Source Deductions Problems
Business owners often get into business for themselves, because they are good at producing the product or service that their business is says Edmonton small business accountant. But that doesn’t necessarily make them good at running that business. Michael Gerber, the author of the E myth says” the fatal assumption is: if you understand the technical work of the business, you understand a business that does that technical work.” This is not true, a dentist may be great at being a dentist, so they open their own practice, but being a good dentist doesn’t mean they are good at running a dentist business. Many entrepreneurs need lots of help when they open their business, in order to learn what they should be doing as well as what they should avoid. One of the most important things that business owners should avoid when they start their first business, is to avoid making payroll remittances mistakes. Mistakes that are made on payroll remittances, carry huge penalties that a business owner may not be able to recover from.
Many business owners are aware that they must withhold CPP, EI and taxes from their employee’s paycheck, but they are not always aware that they must also pay a contribution themselves. Edmonton small business accountant says there are actually five different components that must be paid for payroll remittances. In addition to what the business owner is withholding from their employees paychecks, they should also know that there is employer contribution as well. Business owners must pay CPP in the amount that’s equal to what their employees have taken off of their check, they also have EI that they must pay which is 1.4 times the amount that their employees pay. This adds up to 7.37% of remittances that business owners are responsible for paying themselves. If they miss adding the contribution that they owe, they will be creating a shortfall in the amount they owe CRA every single payroll. While CRA may not catch this in the moment, once a business owner files their year-end taxes, CRA will definitely see how much they should have paid versus how much they did. If a business owner has paid to little in their payroll remittances, not only will they hear from CRA to pay back that money immediately, they will be hit with a 20% interest penalty. As well, this may trigger an audit for the business.
Edmonton small business accountant says entrepreneurs should also be aware that directors in the company are personally liable for payroll tax. If they run into problems, no matter what happens in their business, they will be responsible for paying back the payroll taxes that should have been paid in the first place. Even if the business goes bankrupt, CRA will continue coming after the business owner in order to collect the money matter what. For this reason, many business owners may choose to not include their spouse as a director in their business. Edmonton small business accountant says that if there is ever a risk involved in their business that they may not get paid for a job, and will be unable to pay source deductions, they can protect their assets a bit better if only one of them is a director of the company.
When business owners get behind on their payroll remittances says Edmonton small business accountant, they run into massive penalties, and may not be able to recover financially. Therefore it’s extremely important that business owners are aware of all of their requirements when it comes to submitting payroll remittances, so that they can create a plan with their accountant on how to use effective tax planning in their business to avoid running into payroll tax arrears.
The simplest way for business owners to avoid running into payroll tax arrears says Edmonton small business accountant, is to know when there deadline is for submitting payroll remittances, and then ensuring that they never pay them late. Simply by being one day late on submitting remittances to CRA, business owners can be hit with up to 20% interest per day on the amount that was do. That means for businesses that owed $10,000 on payroll remittances, simply by being a single day late they can add $2000 to that amount overnight. Business owners must pay their remittances to CRA by the 15th of every month. For every payroll that they run in the month previously, they must submit to the remittances by the 15th. However Edmonton small business accountant advises that business owners don’t need to wait until the very last day in order to pay, and that they should aim to pay early in order to avoid the risk of paying late. In fact, if business owners are already calculating source deductions during their payroll, it’s very simple and easy for business owners to create the payment for CRA at the exact same time and send it off. By sending their remittances at the same time as running payroll, business owners will never run the risk of paying CRA to late.
CRA takes a very strict view of business owners who are either lights or have missed paying source deductions. They view the money that should have been sent to them as a trust fund, and that the business owner is abusing that money. They have such high penalties, in hopes that it will act as a deterrent for business owners. By having huge penalties for late payments, most business owners should work to avoid late and missed payments. Not only are the penalties honey, but CRA is extremely aggressive when it comes to collecting that money, and business owners should be aware that they run the risk of being audited in their business if they file late or missed a payment.
by understanding what their requirements are as Edmonton small business accountant, and knowing what the penalties are for missing those requirements, business owners can avoid source deductions problems in their business indefinitely. All we want here at Spurrell & Associates is for your business to flourish.