Top Ten Tax Mistakes and How to Avoid Them

Filing taxes can be a complicated process, and there are many mistakes that can be made along the way. Pay close attention to these 10 common mistakes taxpayers and business owners make to avoid being fined or paying more than you should this tax season.

Not Paying Your Taxes on Time

Many people leave their taxes to the last minute, or worse, forget to file on time. If you don’t file your taxes on time, the CRA can charge a late penalty of 5% of your balance owing, plus an additional 1% for every month you’re late. If you’ve filed late and already paid the late fees within the previous three years, you will be charged 10% of your balance owing plus 2% for every month you’re late. Filing late also delays your refund if the CRA owes you.

Forgetting Allowable Deductions or Credits

It can be confusing to know which tax deductions you qualify for from year to year, especially when the government makes changes to them frequently. If you don’t claim all the deductions and credits you are entitled to, you’ll pay more taxes than necessary. An important one to remember to look for is the tax deduction for work-related expenses that you paid for out of pocket.

Mixing Personal and Business Expenses

One of the biggest mistakes you can make is mixing personal and business expenses, and you’ll understand why when tax time comes. When you use the same account for business and personal expenses, you might neglect to keep track of which expenses are for your business.

During tax time, you’ll have to go through your records and separate business expenses from personal expenses, which is time consuming. You might also mistake a personal expense for a business expense. You can avoid this by having a separate account and credit card for your business.

Inaccurate Payroll Records

Many small businesses manage the payroll themselves, but this can lead to errors, which can result in some hefty fines. Make an appointment with our trusted team at Onyx Accounting to discuss how you can best organize your payroll system and properly classify your employees to avoid tax related issues.

Failing to Report Cash or Trade Payments

All business transactions need to be recorded and reported, even cash or trade payments. Failing to report these types of business transactions can lead to severe penalties including fines from the CRA, being charged extra interest, court fines and possibly jail time. Avoid this by keeping all paper receipts made out to customers and clients.

Not Having Valid Receipts

With the rise in online tax filing, many people fail to keep their receipts. However, this can cause problems if the CRA requests to see receipts for expenses you claimed. The CRA only accepts receipts that include the date of payment. If you cannot provide these documents when asked, your claims will be denied. Invoices and credit card statements are not accepted.

Thinking You Can’t Change Mistakes After Filing

After filing your taxes, you might realize you made a mistake. The best way to avoid this is to review the information you’ve entered carefully, however, it’s possible that you might miss something. The good news is that you can make changes after filing. Wait for your Notice of Assessment to arrive and then request a change to your tax return. You’ll need to submit supporting documentation and it’s up to the CRA to decide whether or not they’ll allow the change.

Claiming Expenses You're Not Entitled To

Many people claim expenses they’re not entitled to, sometimes by accident or on purpose. Claiming extra expenses is considered a failure to report income by the CRA, and you could be charged interest and penalized if the CRA audits your tax turn.

Being Disorganized

This one might seem like common sense, but tax season will be easier for you if you’re organized. Keep all your receipts and documents in one place, so you don’t misplace them. Tax season is the worst time to play catch up on your record keeping.

Not Seeking Professional Advice

Tax season can be stressful, especially if you don’t have an accountant on staff. The first rule of not understanding something is asking for help. We can help with your corporate accounting, so that you have one less thing to worry about during tax season. Give our team at Onyx Accounting a call today to get started.