As tax season approaches, it is crucial to start gathering your paperwork and to get in the tax accounting frame of mind.
While tax filing can be challenging, seeking the guidance of a licensed tax professional at Taxpage to review your books and ensure financial efficiency and accuracy can help you avoid costly tax reporting errors and reduce your tax expense. Here are some mistakes to steer clear of that businesses and individuals routinely make that you must avoid to reduce your risk of an audit by the CRA.
Inaccurate and Unorganized Record-Keeping
Throughout the year, it’s necessary to keep track of all financial transactions, including receipts, invoices and bank statements. Not maintaining precise records is one of the biggest mistakes that individuals and businesses make when it comes to tax preparation. Failure to keep accurate records can lead to missed deductions, incorrect tax filings, and increased scrutiny from the Canada Revenue Agency (CRA).
Not Reporting All Sources of Income
Failing to report income accurately is another typical tax mistake that can occur if you have multiple income sources, such as rental income or income from a side business. Reporting all income accurately is critical, as failing to do so can result in fines and penalties that may be more costly than the original tax expense.
Missing Reporting Deadlines
Missing tax deadlines is a prevalent mistake that can result in significant penalties and interest charges. Knowing all tax deadlines, including the deadline for filing and the deadline for paying taxes owed, is crucial. Late tax filings may result in a penalty of up to 5% of the amount owed, plus an additional 1% for each month the return is overdue, up to a maximum of 12 months.
Not Benefitting From All Applicable Deductions and Credits
Not taking advantage of all available deductions and credits is another common tax reporting mistake. The Canadian tax system offers numerous deductions and credits that can significantly reduce your tax bill, such as deductions for charitable donations, medical expenses and business expenses. Consulting with a tax lawyer can ensure that you are utilizing all available deductions and credits legally.
Ignorance of Changes in Tax Laws
This is another reason to consult a tax lawyer, as missing changes to tax laws can result in missed deductions, incorrect filings and penalties. It is vital to stay up-to-date with all changes that could affect your tax filings or speak with someone whose job it is to do so.
Not Consulting a Professional Before You File
In addition to pointing out deductions and credits you are unaware of, an accountant or tax lawyer can alleviate the stress associated with tax season, allowing you to focus on other important areas of your business or personal life.
Failure to Pay Taxes Owed
Finally, failing to pay taxes owed is probably the biggest mistake and can result not only in significant penalties and interest charges, but headaches, stress and vast amounts of time. If you are unable to afford your tax bill, consulting a tax lawyer can provide you with payment options you might be unaware of, and they can negotiate payment terms with the CRA on your behalf.
Related:
- Top 5 Methods to Maximize Your Tax Return
- Choosing the Right Tax Settlement Service: a Guide for Taxpayers
