If entrepreneurs are waiting until they reach a certain threshold before they incorporate their business, outsourced accounting services says that they need to ensure that they are filing their taxes properly in the meantime, so that they do not end up paying penalties, or higher interest rates on the taxes that they owe. Not only do unincorporated businesses have different tax requirements as corporations, they also have different accounting requirements, and it is important that entrepreneurs know the differences between the two whether they are operating a proprietorship or corporation.
One of the first things that an entrepreneur should understand about operating a proprietorship, is that because it is unincorporated, the business remains attached to the business owner as well as the business ownerís obligations. Because of that, that means that the businesses tax filings need to be done at the same time as entrepreneurs personal taxes. Even though they are filed same time, an entrepreneur should be using a different form for their business taxes than they do for their personal tax return. This form is called a T2125, and when filled out properly, an entrepreneur can send that as well as their personal tax return at the same time to Canada revenue agency.
Although business owners need to know that there business taxes in their personal tax return should be sent off at the same time, they do not have to file on the typical Canadian personal tax return deadline of April 30. CRA recognizes that proprietorship might need some extra time completing their year end, so they have an additional forty-five days to prepare their year end filing for their business. They have until June 15 every year to file their business and personal taxes. Outsourced accounting services says that business owners need to take note however that even if they file by the deadline of June 15, if they owe taxes to the government, they will start getting assessed with interest from April 30. This is 1% per month on the entire total that they owe, which is not a large amount and is not a penalty. They will receive a penalty however if they miss their June 15 deadline in the form of a higher interest rate.
In order to ensure that business owners have done their year end properly, they should contact outsourced accounting services to get a second opinion on their tax return before they sent it off. As accountant will be able to help them ensure all of their expenses are properly classified, for example they do not have all of their automotive expenses into the travel category. Also to ensure that all of the expenses that claimed reasonable, and that none are missing and that the revenue is placed in the right revenue streams in the right cost of goods sold are matched up with them. By doing this, business owners can ensure that they put in everything they can to minimize the risk in their business and ensure the accuracy of the information they send off to CRA.
When business owners are starting their business, they may not be starting it as a full-time job just yet says outsourced accounting services. Because of that, they are not sure if they want to incorporate their business until it has reached a certain threshold. Because of that, they end up operating it as a proprietorship, without really understanding the difference between proprietorships and corporations. In fact, there is many differences between the two, not just in the business structure, but in their tax filing requirements as well as their accounting requirements. Entrepreneurs may be spending more time and more money on their accounting then is necessary, instead they could be spending that time building their business to get threshold they need to be at in order to incorporate.
The biggest difference between and corporations and proprietorships, is that a corporation is a separate legal entity from the entrepreneur and has different tax requirements. The proprietorship on the other hand is attached legally to the business owner and the business owners tax obligations. Outsourced accounting services says that when business owners are operating as a proprietorship, they have less stringent accounting requirements. learning what they have to do is very different than what corporations have to do, and is very important to learn.
While corporations need to utilize a method of accounting called double entry accounting, and they need to purchase specific accounting software like QuickBooks, Sage or zero in order to do this style of accounting, proprietorships only need to do is called single entry accounting, and using accounting software is not necessary. Not only can this help entrepreneurs save money from not having to buy the software, but it can save them time. By not having to learn that software, or spend time doing higher level of accounting in their business. This is something that entrepreneurs will eventually have to learn when they grow their business large enough to incorporate, but until then, the time that they save in their business can be spent growing their business.
With double entry accounting, business owners have to ensure for every debit in their business there is a credit, and for every expenses they have coming out of the bank account or credit card then they have revenue being deposited into their bank. Outsourced accounting services says that when they do this style of accounting, the books need to balance at the end of the month, and if they do not, it is because there has been a mistake, by easily being able to tell a mistake has been made, entrepreneurs are more able to catch mistakes and ensure the accuracy of their information. However, single entry accounting is much easier to learn how to do, because there literally just listing all of the revenue, expense accounts and cost of goods sold, but that single entry accounting is a lot more easy to make mistakes on, and if they are not being careful, it is hard to fix those mistakes.
By learning what their accounting requirements are for proprietorships, can help entrepreneurs ensure that they learn the best method, and what they can do to help ensure the accuracy of this accountings they have the best financial records possible.