For many small business owners, tax time brings on a migraine – or a full-blown panic attack.
Even if they’re using an accounting software package or working with an accountant, they may not be using these resources to their full capacity, experts say.
This means these business owners miss out on the benefits such products can offer.
On average, most people will only use 20 per cent of the capabilities of their accounting software package.
Also, they assume that just because the software allows them to do something, it must be legal – and that’s not necessarily the case.
Esther Friedberg Karp, principal of CompuBooks Business Services, incorporated her business just over a year ago and was faced with doing her first corporate tax return.
Though she provides business-consulting services, she doesn’t do other people’s taxes, nor does she like doing her own.
“Taxes strike fear in my heart,” she said, echoing a sentiment many small business owners feel this time of the year.
“I’m not going to practice medicine without a licence – why would I do my taxes without a licence?”
And if you mess up your tax return, there can be some really nasty ramifications, she added.
Friedberg Karp ended up hiring a professional.
But for those businesses that want to do their own taxes, they can choose a product from one of the accounting software vendors – preferably something Canadian, since it includes relevant GST and PST information.
Just make sure it includes GIFI, or General Index of Financial Information, which is a system designed by the Canada Revenue Agency that assigns a unique code to a list of items commonly found on income statements and balance sheets.
“It’s important to have a GIFI link for each account you’re using in your accounting software because it allows the CRA to collect and process financial information more efficiently,” the CompuBooks principal said.
“Make use of the GIFI code link that the accounting software will enable you to assign to each account.”
Even for those who plan to go to an accountant, the accounting software can ensure the data is as clean as possible before the preparation.
“It’s a matter of getting all your ducks in a row in the accounting software itself,” she said. This includes doing all of your bank and credit card reconciliations, and making sure you’ve done everything possible to make it a clean set of books before handing it off to your accountant.
The major accounting software packages have a feature called an accountant’s copy.
When finishing off your books for the year, instead of just giving them to your accountant, you can give them an accountant’s copy (which is like a shadow copy of your version).
That way information from your accountant can be imported into your version rather than manually re-entered.
“The accountant’s copy is a fabulous idea,” said Friedberg Karp. “I’m not 100 per cent happy with the execution yet – some features aren’t working as well as I’d like, but every year they’re improving the [feature] to make it as seamless as possible.”
Look for an accountant who understands the ins and outs of that particular software, she said, and make sure they’re certified with that vendor.
Accounting software can help you keep track of your books throughout the year, so tax time is slightly less painful.
Sage Software, maker of Simply Accounting, offers year-end checklists in its products, with reports that you can print out and give to your accountant.
This lets you be proactive in setting up your budget for next year, said Jennifer Warawa, director of partner programs with Sage Software.
“Even if you’re a small business owner, there’s a lot of value in working with an accountant who understands taxes, but the main thing they can do now is be proactive and don’t leave their taxes until April 29,” she said.
A lot of companies wait until the last minute and don’t get the benefits that come with proactive tax strategy planning.
The government expects businesses to make installment payments, rather than annual payments, and it charges interest on those payments – and this is why proactive planning is so important.
“The software allows you to print the reports to do that, and it’s a good way to plan out the rest of the year,” said Warawa. If you’re in the landscaping business, for example, and your business is going to shut down in October, you can then project your tax strategy out.
For businesses that haven’t yet come up with a plan for 2008, they can use the budgeting tool to come up with a budget, look at where they are compared to where they thought they wanted to be, and compare income statements to see if they’re on target with their budget.
The software should focus heavily on the problems that are specific to small businesses in Canada, said Dan McMahon, senior product manager for QuickTax Business with Intuit Canada. “Claiming business deductions – those are things that people want to maximize.”
That’s why products should work in conjunction with each other – if you’re using QuickBooks accounting software, you can import all of your tax information into QuickTax Business.
“You don’t have to re-enter information, because you’re getting it from one source,” he said.
For small businesses in Canada, Intuit offers two flavours of its QuickTax Business software, one for incorporated businesses and one for unincorporated businesses.
“The goal is to make it easy enough for you to do yourself,” said McMahon. “A lot of the small business customers in Canada have a strong do-it-yourself type attitude, and it allows them to save time and money.”
Intuit does, however, offer unlimited customer support and automatic updates of any changes in tax legislation.
The “interview” portion of the product, which provides a simpler view of a typical tax form, shows users what deductions they qualify for.
This alerts them that it’s something they should look out for throughout the year. And returning users don’t have to re-enter everything, so they would save that time.
After all, the sooner it gets done, the better, McMahon notes. “People want to do their taxes and get back to running their business,” he said.