Small business owners risk heavy penalties and professional fees by mixing personal and business records
In a report focused on helping small business owners avoid key taxation mistakes, Mr. Golombek writes that while business owners may find it easier to deposit cheques to a personal bank account, or to charge business expenses to a personal credit card, these decisions can put them at risk. He notes that sorting out what is a business expense and what is a personal expense at tax time can be tricky and individuals can inadvertently deduct an ineligible expense - a mistake that can cost them thousands of dollars.
"There is a lot to learn when starting your own business and there is plenty of room to make mistakes but one of the worst mistakes and simplest to avoid is not mixing business and personal expenses together," says Mr. Golombek. "Having a separate bank account and credit card for a business will make tax time a lot easier and can also come in handy in the case of a Canada Revenue Agency business expense audit down the road.
"If you own a business you are required by law to keep adequate records," says Mr. Golombek. "Failing to do so can cause extra hours of paper work at tax time instead of focusing on your business and you could end up having to pay tax penalties."
To make sure this does not happen, Mr. Golombek suggests the following tips.
Keep personal and business separate. One of the easiest and best ways to distinguish business from personal expenses is to have two separate bank accounts: a personal account and a business banking account.
Keep good records. If your business is small and you do choose to manage your business finances together with your personal account, it is important to clearly define which charges are for business purposes, since these can be deducted on a tax return, and which charges are non-deductible personal expenses.
Seek expert advice. Surround yourself with a team of advisors that you trust including a business banker, tax and legal professionals, prior to starting your small business.
"Taxation rules for businesses are quite complex and can change regularly," adds Mr. Golombek. "It is important to understand what the tax rules are, or better yet have an expert to look after your taxes for you."