Taxes and Your Home Business tagged: , ,

Taxes and Your Home Business

Posted by in Home Business, Taxes

It’s that time of year again.  Tax season is upon us and the various accountants in the city are scrambling to keep up with demand.  I can’t think of anybody who likes this time of year- the weather is no good, the roads are covered in rocks (which are more than happy to peel the paint off of the hood of my car), and the taxman is beckoning.

I’m going to tell you a story, and as sad as it is, it’s a true story.

In 2007, when my internet business first took off and I started making enough money that the possibility of me owing the government became a very real one, I decided to cheap out and purchase small business tax software to take care of my taxes for me.  My logic at the time was that I’d be saving my fledging business money by keeping the “expensive” accountants out of the picture and taking care of my taxes myself.  After all, the most I had to lose was just time, right?

I’ll tell you right now that hindsight is 20-20, and I wish all I had lost was time.

The Dangers of “Saving Money”

After filing my taxes the software I used let me know that I owed a sum of $2,191 for my corporate taxes and that I was owed $1,857 for my personal taxes.  Considering what my business had done that year for revenue the $300 difference between the two that I owed was a paltry sum that I was more than happy.  Oh, how I should have seen the error of my ways.

During the 2008 taxation year, after having decided to seek an accountant to take care of my mess of taxes, I was hit with a bombshell from the friendly government body known as the “Canada Revenue Agency”.  In effect, this bombshell let me know that I actually owed a lot more than the $2,191 I had paid and that I was being assessed.  For a lot of money.

Damn.

After working it out myself I realized that I owed $41,800.  My heart sank, my stomach sank, and every other organ that had the ability to sink chose to do so at that precise moment.  It was not a good day.

My accountant, bless her heart, rushed to my rescue.  Thanks to her in-depth knowledge of Canadian corporate and personal income tax policies, as well as her thorough examination of my business expenses and operating costs, we were able to reduce the total amount owing to roughly $23,000- $16,000 to the federal government, $5,100 to the government of Ontario (I operated out of Ontario for a while), and $1,064 to the government of Alberta.

The Lesson I’ve Learned About Corporate and Personal Taxes

I learned a harsh lesson- a lesson that took me the better part of 18 months to resolve.  To emphasize the lesson I’ve learned I’ve decided to emphasize my point with a cool shaded box:

If you are only doing your personal taxes, and those taxes are relatively simple, off the shelf tax software will do the job.  For anything business related not hiring an accountant is negligent.  Lesson learned.

Have you ever made any blunders with your taxes?