Get ready for the 2022 income tax deadline: a small business checklist
Are you ready for the 2022 income tax deadline? If you are an individual or business owner under a sole proprietorship, the deadline for filing your income tax return for 2022 is April 30th, 2023.
In the excitement of the holiday season, many businesses wait until the new year to start their income tax preparation. But waiting until the last minute can be a costly decision. Having to look for documentation, complete forms or look for clarification close to the income tax deadline is also an additional stress for business owners and employees alike.
Wondering how to avoid stress and have a smooth process for your income tax deadline? Check out our income tax preparation checklist.
What do small businesses need to prepare for the 2022 income tax deadline?
1. Update your Bookkeeping
Monthly bookkeeping is an important component of income tax preparation. If you work with an accounting firm or bookkeeper, your bookkeeping is probably in order. In that case, providing your bookkeeper with the last batch of receipts and bank statements for the year as soon as possible can help ensure your bookkeeping is ready in time for the income tax deadline or even earlier.
If you do your own bookkeeping, your accountant will need access to your records and information to begin your income tax preparation. These records include:
- Your bookkeeping records for the year – they can be provided electronically via accounting software or even in a spreadsheet
- Financial Statements for the year – including balance sheet, income statement, cash flow statements
- Payroll records – if you have employees or subcontractors, you will need to provide information on the payments and contributions you made for them.
If your bookkeeping is not up to date, or if you have never worked with a bookkeeper, your accountant will need to prepare financial statements and your books before filing your taxes. This is another important reason to start working on your income tax preparation early on. This is a list of what you need to provide to your accountant:
- Bank Statements
- Credit Card Statements
- Sales Invoices and any other income records
- Loan agreements
- Year-end inventory listing
- Receipts on capital purchases
- Records on assets and disposal of assets during the year
- Accounts Receivable – a list of any accounts receivable that have not yet been collected
- Accounts Payable – a list of all outstanding accounts payable which relate to the current tax year
Catching up with a whole year of transactions is a lengthy process. Since spring is the peak season for accounting firms and bookkeepers, waiting until the last minute to start your income tax preparation could prevent you from making your income tax deadline and lead to penalties and fines for late filing. It is highly recommended to start the bookkeeping process as soon as possible.
2. Get your Employee and Subcontractor forms in order
If you have employees or work with subcontractors, you are required to provide tax slips by February 28th, 2023. Working on these tax slips early can expedite income tax preparation.
According to the CRA, employers are required to provide T4 slips reporting all remuneration, including:
- Salary, wages and pay in lieu of termination notice
- Tips, gratuities and bonuses
- Vacation pay
- Commissions
- Taxable benefits and allowances
- Payments from wage loss replacement plans,
- Other employment income
T4s should also include the following:
- Pension adjustments (PA) – amounts accrued during the year for registered pension plans (RPP) or deferred profit-sharing plan (DPSP)
- Canada Pension Plan (CPP), Quebec Pension Plan (QPP) Contributions
- Employment Insurance (EI) premiums
- Provincial Parental Insurance Plan (PPIP) premiums
- Taxable group term-life insurance benefits
For more information on filing T4s, check the Employer’s guide here, or contact your accountant. If you work with subcontractors, you may still have to file a T4A.
3. Collect all forms, correspondence and receipts
In addition to bookkeeping and employee information, your accountant will also need all forms, correspondence and receipts relevant to your income tax preparation. This includes:
- Income Tax Installment Forms
- Income Tax Assessments
- Notices of Assessments
- T4 Slip for you if you have employment income in addition to business income.
- T4 Slips provided to your employees
- T4A Commission Slips
- T4A Contractor Slips
- T3 Slips (Income from Trusts)
- T5 Slips (Investment Income)
- RRSP Contribution Slips
- Workers Compensation Slips
- Donation Slips
Providing these forms and any other relevant documents will ensure accuracy in your income tax preparation and avoid missing your income tax deadline. It is important that your accountant has a full understanding of your financial position and any interactions with the Canada Revenue Agency (CRA).
4. Collect personal receipts and home-office expenses
If you are a sole proprietor or if you have a home office, some personal or home expenses impact your income tax preparation. Your accountant will need receipts related to the following:
- Business Use-of-Home – if you are running a home-based business or have a home office, expenses related to the percentage of your house that is related to your business can be deducted from your business income tax return. This includes utilities, internet, home maintenance, security, insurance, etc.
- Motor Vehicle Expenses – if you use your vehicle for business, the percentage of mileage related to business expenses can be applied to fuel, repair and maintenance.
- Medical and Dental Receipts – when filing as a sole proprietor or if your business includes a medical and dental coverage plan, you may be eligible to deduct medical and dental expenses.
In case of an audit, it is important to retain detailed information about your business and personal deductible expenses, along with receipts and documentation on what percentage of your home and vehicle expenses are related to your business. Your accountant can help you determine which expenses are deductible.
5. Send information to your accountant
Once all your documents, forms, and financial information are ready, it’s time to submit them to your accountant. They will start working on your income tax preparation by reviewing the information you provided, evaluating your options for tax planning, and ensuring all possible business deductions are accounted for. Your accountant can also submit the taxes to the CRA on your behalf.
Engaging an accountant early in the year also allows additional time for identifying opportunities to contribute to RRSPs, provide charitable donations, and other possible tax reduction strategies.
If you are looking for additional insight and advice on tax deductions and opportunities, our tax planning services can help you reduce your tax liability and achieve your financial goals.
Important Note:
Once you submit your financials, don’t forget to close your books and ensure no changes are made after your accountant starts working on your year-end. Even small changes to transactions can duplicate your accountant’s work and increase the cost of your income tax return or even cause you to miss your income tax deadline.
What comes after my income tax deadline?
Once you submit your 2022 income tax return, you will wait to receive your official notice of assessment. If you are working with an accounting firm, they might be available to support you with any additional inquiries or in case of a CRA audit. You might also want to explore working with a bookkeeper on an ongoing basis. Our bookkeeping services ensure business owners are ready for their income tax deadline without last-minute stress and worries.
Sources:
- Understanding tax on dividends in Canada - May 24, 2023
- GST/HST Netfile: making your returns easy - April 25, 2023
- Ontario Staycation Tax Credit - March 23, 2023