As the 2018 tax season wraps up, tax is likely the last thing you want to be thinking of. That said, now is probably the best time to get organized for the coming year. By setting up proper systems and processes early, a lot of headache and stress can be avoided close to the deadline.
- Assess your bookkeeping system: If you are going to change your bookkeeping system, whether it be from excel-based to cloud-based, or from a shoe box of receipts to excel, it is best to do it as early as possible in your tax year.
When you hand things to your accountant, if you have different methods of bookkeeping used in a single tax year, the accountant will have to combine together multiple systems and perform reconciliations to ensure nothing is double counted or missed. That is why if you are changing your bookkeeping process it is best to set things up as if you are starting from the beginning of the year (January 1 assuming you are a sole-proprietor or have a December corporate year end).
We would then recommend going back in time and re-doing any bookkeeping from the beginning of the tax year so everything is recorded in one system. You can read about cloud based bookkeeping and if it makes sense for your business here: https://kapasi.ca/is-cloud-based-accounting-right-for-you/
- Organize your paperwork: Today, a file folder organization system for receipts/invoices is not the only way to organize your paperwork. There are numerous software solutions, such as HubDoc, DropBox, and Evernote, that let you digitally organize and store your receipts, invoices, and other paper work.
You can then shred the physical copies once you have uploaded and saved the electronic data with appropriate back-ups. Make sure you set up folders by month and set up time-stamping so you can easily sort and find receipts. Similar to your bookkeeping system, setting up and maintaining this type of tracking is best done early in the year.
- Discuss your tax planning strategy: Early in the tax year is a good time to discuss tax planning and strategy with your accountant for the upcoming year. This is because changes in the approach can impact what is required today.
For example, changing from dividend to salary withdrawals from a corporation will require source deduction payments monthly to CRA. Also, any corporate re-organizations or succession planning started early in the year gives lots of time for the legal paperwork and tax filings to be made on time, avoiding the December rush.
- Discuss any changes to tax rules: Discuss with your accountant if there have been any changes to tax rules that would impact you in the upcoming year. Recently, changes to income sprinkling and passive investments came into effect, which impacted how and to who dividend distributions are able to be made out of the company. See our post here for details: https://kapasi.ca/income-sprinkling-rule-changes/
- Watch for letters from the CRA: The CRA has been increasing the number of reviews and audits they perform. It is important to give all these letters to your accountants as soon as possible as these letters have a deadline to respond to and can impact the taxes you owe if they are not addressed within 30 days. In addition, your accountant should review any notice of assessments and re-assessments sent by CRA to ensure they agree with filings made.
We would be happy to discuss ways to proactively tackle the above tasks. Please feel free to reach out to us here: https://kapasi.ca/contact-us/