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E-Myth – “Why most small businesses don’t work & what to do about it”

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Outsourced Accounting Services | Do Proprietors Have Unique Tax Requirements

Entrepreneurs often start their business with the best of intentions says outsourced accounting services, and are often running their business at the same time of continuing to hold down a job. They are unsure of whether it is going to be successful, and they cannot afford to quit their job yet, therefore they do not want to pay the money to incorporate their business yet, until they know it is going to be successful. As a result, they run their proprietorship, without understanding that the tax filing and accounting requirements are extremely different for proprietors then incorporated businesses. When entrepreneurs start their first businesses, the first thing they should do is understand the difference between what a proprietorship and a corporation is, so that they can ensure that they are doing the right things in their business to set themselves up for success.

The differences between a proprietorship and a corporation is as follows: a proprietorship is an unincorporated business that remains legally linked to the entrepreneur and the entrepreneurs tax requirements. This essentially means that an entrepreneur needs to ensure that there business taxes are filed at the same time as their personal taxes. A corporation on the other hand is a legal entity separate from that of the entrepreneur, and it exists for tax purposes. Not only does it have different tax requirements, but the deadline of a corporation is determined by the fiscal year end, which is set up by the business owner at the time of incorporation.

Because the tax filing is very different for proprietorships, and is due at the same time as an entrepreneurs personal tax return, they need to understand when that is. Outsourced accounting services says that even though the personal tax return deadline for Canadians is April 30, Canada revenue agency has given an additional forty-five days for proprietors to file their taxes. This means that proprietors need to file their business and personal taxes by June 15 every year. The have a different form that they have to fill out as a proprietor, and return that along with their personal tax return to Canada revenue agency by June 15.

One thing for entrepreneurs to keep in mind with this extended tax deadline, is that even though they have forty-five days longer to file, if they owe Canada revenue agency any taxes, the interest for those taxes will start accruing on April 30. This is not a penalty, it simply 1% interest charge per month on the entire total until they pay their taxes. However, entrepreneurs should be aware that if they do miss the June 15 filing deadline, they will get assessed with late filing charges, and higher interest as well. It is extremely important that they file their taxes on time every time.

When entrepreneurs are learning how to run their proprietorships, they should be aware of the legal differences between proprietorships and corporations, so that they can ensure that there doing their business finances correctly, to ensure the accuracy and ease of their year end filings.

Outsourced Accounting Services | Do Proprietors Have Unique Tax Requirements

Despite the many benefits that incorporating business can offer, outsourced accounting services says that not all businesses feel that it is the right decision for them. There is no problem and entrepreneurs making that decision, but they should understand that there are some significant differences in the way a proprietorship and a corporation does their accounting. By understanding this early on in their entrepreneurship can help business owners maintain as accurate records as possible, help them not only file accurate year end taxes, but have the information in their business they need to grow their business and be successful.

The most significant difference that businesses that are proprietorships will face, is that the type of accounting is called single entry accounting. This can be a lot easier for an entrepreneur to learn how to do, but is also more prone to errors. In order to minimize those errors, outsourced accounting services recommends that entrepreneurs first to create a separate business bank account from their personal bank account. What this can help an entrepreneur do is keep a record of all of the transactions in the business. All of the revenue coming into the business, and all of the expenses going out will all be kept track of in this bank statement. It is extremely important however that entrepreneurs are very careful not to mix personal expenses and with their business account, because it can affect the integrity of the information.

How the single entry accounting works, says outsourced accounting services is that an entrepreneur will keep track of the revenue categories on a spreadsheet, all of the expense accounts and cost of goods sold. By keeping track of all of these things on a spreadsheet, can give an entrepreneur enough information in order to work on their tax return. The reason why this is easier to have errors, is because there is no books being balanced at the end of the month, if a mistake was made putting a total into the spreadsheet, unless a business owner happens to find that mistake, it could mean incorrect totals in the business.

When way that entrepreneurs can help ensure that they are setting up their single entry accounting system properly, is by getting advice from outsourced accounting services. That can help them figure out what categories they should track in their business, and what the most need to totals are. An accountant can also help an entrepreneur decide on revenue streams, find out what certain categories mean and give them some high-level projections to set goals towards.

When entrepreneurs are able to set up their single entry accounting system properly, they can not only avoid errors, but ensure that they are keeping as good record as possible so that they can use that information to help their business grow, reach their goals and become profitable for the business owner.