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Virtual Accountant | How To Properly Submit T4 And T5 Slips Properly

One of the first things that it is very important for entrepreneurs to learn as a new business owner is a virtual accountant is when and how to file their taxes properly. The reason why, is because when entrepreneurs fail to file their taxes on time, or properly it can trigger additional problems for their business. For example, when entrepreneurs do not file their T4 or T5 slips properly or fail to file them at all, they could trigger a payroll audit with Canada revenue agency. This could end up with entrepreneurs having to pay more in taxes as well as interest charges. Since most entrepreneurs struggle financially, costing them additional payments should be avoided at all costs.

The first thing that entrepreneurs should understand in order to ensure that there filing their T4 and T5 slips properly and on time is understanding what those slips are. Virtual accountant says but is being recorded on a T4 and T5 slips is all of the money that is coming out of the business for personal benefits. Either for the entrepreneur or for the staff in the form of employment income. The reason why there are two slips is that when an entrepreneur takes money out of their corporation, it can only happen in two ways either by salary, which is claimed on a T4 slip, or in dividends, which is recorded on T5 slips.

There are some significant differences between salary and dividends that entrepreneurs need to understand in order to file these slips properly. Since T5 slips are for dividends, business owners need to understand that only business owners and shareholders can claim dividends. This is the way that prophets of the business are disbursed. These are also not considered an expense on the income statement of the business and do not have source deductions taken from this income.

Virtual accountant says T4 slips, on the other hand, is to keep track of all employment income that has been paid out in the business. This means the business owner, and all employees who have taken a salary or wages from the business can get a T4 slip. Because employment income is considered an expense, it will show up on the income statement of the business. It is also very important to note that all employment income needs to have the appropriate source deductions withheld from that amount for all employees including the business owner. An entrepreneur needs to ensure that the appropriate percentages of CPP, both for the employer and the employee portion as well as EI and income tax are being deducted off of each check properly.

Once an entrepreneur understands what a T4 and T5 slip is for, virtual accountant says they should ensure that they are filing these by the last day of February every single year. If they meet that deadline, business owners will significantly minimize their risk of triggering a payroll audit with Canada revenue agency.

Virtual Accountant | How To Properly Submit T4 And T5 Slips Properly

When entrepreneurs get into business for themselves says virtual accountant, they may be good at providing that product or service that their business is in, but that does not necessarily mean they are well versed in how to run a business. Therefore, when entrepreneurs start their own business they should learn early on but taxes they need to pay and when in order to avoid paying penalties that could cause them financial distress.

One of the most important taxes that an entrepreneur is going to have to pay our their source deductions. These are all of the amounts that an entrepreneur must withhold from their employees, and themselves if they are taking a salary. Not only do they owe this amount to Canada revenue agency, but they have to ensure that they get it there by the fifteenth day of the following month that payroll was issued. If an entrepreneur owes source deductions by the time they file their T4 and T5 slips, an entrepreneur could potentially trigger a payroll audit says virtual accountant. One way that an entrepreneur can avoid falling behind in their payroll room andís to Canada revenue agency is to simply ensure that they are paying the remittances on the same day that they are issuing payroll. It will save time since an entrepreneur is already issuing payroll, and by sending the amount that they owe CRA on the day of payroll will ensure that an entrepreneur is never late.

If a business owner does get assessed with a payroll audit from Canada revenue agency, they should expect the auditor to ask for a general ledger and monthly bank statements for the past year. The auditor is looking for two things says virtual accountant: all payments that went out to individuals and all payments that went to the entrepreneur as well as non-cash benefits such as paying a car payment or mortgage payment. The auditor is looking for instances where an entrepreneur may have paid an employee, and not withheld the right source deductions and pass that on to CRA. They are also looking to ensure that an entrepreneur has claimed all personal expenses on a T4 and T5 slip.

If the auditor sees that an entrepreneur has paid individuals, that they have assessed to be employees, a business owner will have to pay source deductions for every single amount that they consider employees. This can be a significant problem if, for example, an entrepreneur was paying for a service to an unincorporated business. The check would then be made out to that business owner’s personal name, and even if they are not an employee, and auditor may assess it that way. To avoid that, entrepreneurs can simply avoid hiring unincorporated businesses at all times.

In order to avoid being assessed additional taxes that an entrepreneur may legitimately not owe, virtual accountant says they can simply file their T4 and T5 slips on time, and ensure that they are paying the appropriate amount of payroll remittances on time, and they can avoid the risk of a payroll audit in their business.