November 2, 2012

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Business experience report: Filing taxes!

I filed my corporate taxes and HST today, well ahead of the deadlines. The money will earn negligible interest in my business bank account and I don’t need it for cashflow, so I’m better off paying the government early and not missing any deadlines. I’m still looking for an accountant to work with in the future, but fortunately, my first-year taxes (no home office deductions, etc.) are simple enough that TurboTax looked like it would do the job.

After reading and re-reading and re-reading the T2 corporate tax return it prepared, I took the plunge and e-filed it with the Canada Revenue Agency. For good measure, I also filed my HST taxes even though they’re not due until next month.

Paying that much in taxes triggers the monthly/quarterly installment requirement, which happens even though they don’t send you a notice. This has tripped up enough new business owners that people have written lots of forum posts about it. I’m glad I found out about that requirement—it pays to watch small business boards! (Actually, it would probably also pay to have a great accountant, but I’ll keep looking.)

There are several options for how much to pay in each installment, but according to the Internet and to the CRA agent that I called to confirm, the safest way is to pay a proportion of what you owed the government the previous year. That way, even if it’s less than your actual taxes owed, you won’t owe interest.

I think I’m eligible for quarterly installments of federal tax, but to be sure, I scheduled monthly payments for federal tax and scheduled quarterly payments for HST. I’ll pay a little extra in terms of bank fees, but it’s worth the peace of mind.

It is a large chunk of money to set aside for taxes. I don’t expect to make as much income this fiscal year because I’m forcing myself to experiment with more uncertainty, so it’s good that I’ve left practically all the money in the corporation.

So there’s another business milestone – surviving taxes! It’s better to plan for a future audit than to assume there won’t be one, so I’m happy to get my books in order. Next year, I’ll learn more about capital cost adjustments. It would be good to have an accountant who can explain these things and make sure I’m doing things right, but it’s good to know these things too!

Someday, when I need to get money out of the corporation, I’ll learn about payroll deductions and T