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

Business update: Tax update

I filed my taxes on November 2 by myself, since I wasn’t comfortable with the first accountant I hired. It turned out to be not that scary (aside from, well, making really big electronic payments) – I don’t mind balancing books, making sense of GIFI codes, or searching the Quickbooks/TurboTax websites for information.

A little over two weeks later, I received a Corporation Notice of Assessment that said I owed an additional $146, with no interest due if I paid it before December 31, 2012. (Good news: that means my tax payments made it into the correct account!) The difference was in the Ontario tax calculations. It was easy to send in another tax payment through my bank.

Someone from the Canada Revenue Agency has been trying to reach me in order to ask questions about my HST registration. We’ve been playing phone tag for a few days. I called the CRA to follow up on that and ask a couple of questions. I confirmed that I was eligible for quarterly instalments instead of monthly instalments. The CRA agent also pointed out that I needed to take into account that I just wrapped up a short tax year, so I recalculated all of my instalments and set up bigger payments. I double-checked that they don’t mind me overpaying my instalments for a little peace of mind. (I know, funny question! “Is it okay if I send you more money than I need to?”) Whew!

I’d still like to know an accountant whom I can e-mail quick questions or ask to review my books. In a few years, I’ll probably want to start taking money out of the corporation in order to take advantage of the basic personal exemption for taxes, and it would be great to have an accountant help me get that set up properly. In the meantime, it’s good to know that the CRA isn’t all that scary – no be-suited auditors breaking down our door! <laugh>

Business experience report: Amending my T2 corporate tax return

I’m still figuring out how to calibrate my stress level when it comes to accounting and paperwork. While reconciling my business credit card statements, I realized that I had double-entered my September credit card charge from WIND Mobile. Correcting the mistake meant fixing last fiscal year’s corporate tax and sales tax returns. Digging into my records, I noticed that I was also missing a few months of bills from Fido, my previous cellphone provider. I’d forgotten to download the electronic statements before moving to WIND Mobile, and once that went through, I didn’t have access to the system. Meep!

“I am definitely not panicking,” I said. “No, sirree.” I took a deep breath and researched the process for amending a T2 corporate tax return. It involved sending a letter to my tax centre. The HST return was much easier to adjust: just change the numbers through the Canada Revenue Agency website. After updating my numbers in Quickbooks and TurboTax, I drafted a letter with the particulars. I hunted down the schedule form and the line items that needed to be changed.

Then I spent an hour working on avoiding the same problem in the future. I downloaded all the other statements I could get my hands on and setting up my routines so that I’d get a reminder to do this quarterly. I also added a checklist for when I’m closing accounts or moving to another company: remember to download statements!

The following morning, I called Fido to find out if I could get electronic copies of my bills. The agent told me that the electronic copies were deleted when my account was closed, but that I could request paper bills for $4 each. Since I probably wouldn’t be saving that much more by claiming it, I decided to remove the missing months from my tax claim.

Then I called the Canada Revenue Agency. The agent confirmed my understanding of the process for amending the T2 corporate tax return – send a letter with the items to change. In my case, I didn’t have to attach all the bills for the telephone; if they wanted additional documentation, they could ask. Yes, I could remit the payment beforehand in order to minimize interest. I told the agent that it probably came out to a difference of $30 or so. I asked, “Should I be majorly stressing out over this or minorly stressing out?”

The agent laughed and said, “It’s no big deal. Don’t worry.”

This is what I mean by calibrating my stress level. There are so many things I’m still figuring out. If I stress out too much, it’s expensive. (Get an accountant to chase all these little things down? That would probably cost more than the tax savings.) If I stress out too little, that can be expensive in terms of time and money and well-being too. Talking to people helps. I want to know what I should be paying attention to, and what can be sorted out later on.

The other thing I have to remember is that this doesn’t have to be that scary. The CRA reassessed my tax return for an extra $146, but they weren’t intimidating about it. I’m up front about the fact that I’m learning, but prospects and clients are cool with the experiment. The consequences of making mistakes are not as earth-shattering as my lizard-brain sometimes fears they are. As I learn to trust, I’ll be able to try things out more freely.

Learning from other people’s experiences helps a lot. I occasionally browse through small business forums and blogs for glimpses into other people’s adventures. I need more stories of uncertainty and starting out, I think. There’s this temptation to gloss over the rough spots, to present an image of smooth running.

I like hearing stories like how my parents carefully, carefully considered their equipment investments back when they were starting out their studio in the tight import-controlled environment of the Philippines in the 1980s. Do they buy this piece of equipment and risk that their capital gets tied up in something that lies unused if the jobs aren’t there? Do they pass on it, taking the risk that if they decide they do need it, it’ll no longer be available? I want stories of figuring things out.

Some people tell me that they like these business experience reports. If you like these experimental observations, can you recommend any other people that I should be reading too?

Business experience report: Setting up payroll and benefits

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Another big milestone in my business adventures: I paid myself for the first time! Not bad, considering this is my second fiscal year. I’ve been nervous about this for a while because I wanted to make sure that the business had a emergency fund of its own, especially when it comes to taxes. I also wanted to get a little more confidence in accounting before opening up a payroll account and remitting the proper amounts. Well, now I’ve done it!

Most of the salary/dividend comparisons lean heavily towards dividends to increase the tax-free income available, although some include a little salary in order to take advantage of the exemptions for tax and for CPP. Since dividends use after-tax dollars, I don’t need a high income to support my lifestyle, and I have some unused RRSP deductions (that’s what happens when you keep maxing it out, and you end in a low-income year!), I crunched my own numbers and figured out that an all-salary payment would be the best for me right now, even with the mandatory CPP contributions.

To keep things simple, I chose an annual payroll period. I didn’t need the regularity of a bi-weekly or monthly paycheque, and it was easier for me to deal with one cheque and one set of remittances. It’s not a popular option, so I called the Canada Revenue Agency (CRA) a few times to check that I was doing things correctly. They told me to use the payroll calculator’s 10-payment option and multiply everything by 10. I wrote myself a business cheque for the amount that I wanted to draw out, deposited it… and then realized that I’d written down the nice round gross number instead of the net amount that the provided calculator had provided, so I went back to the payroll calculator and jiggled the numbers around until it gave me the correct remittances for the net amount I received. I filed my remittance through the CRA’s online My Payment system, and in January next year, I’ll file a T-4 tax form.

Because we’re expecting significant medical expenses that W-‘s extended benefits won’t cover, I also set up a private health service plan (PHSP) with Brock Health. Brock has a $100 set up fee and a 5% admin charge for qualifying medical expenses, but it may let me convert the medical expenses into before-tax business expenses. It doubles my up-front cost, but I have both the business and the personal buffers to absorb that.

It turns out that you can set the effective date for a PHSP to anything that matches a 12-month period ending in the current fiscal year. Since my fiscal year started on October 1, 2012, that meant that I can probably claim expenses going back to incorporation (or maybe even earlier, but let’s not be greedy here).

I felt the twinge of buyer’s remorse after signing up for Brock, as further research turned up Promedent, another PHSP provider that charges a $150 setup fee with a flat fee of $50 per claim. Going with Promedent could save me a few hundred dollars – probably even worth the cost of cancelling and signing up there instead. However, there’s a lot more on the Internet about Brock Health than about Promedent, so if I’m going to experiment with this, I trust Brock a bit more. Brock also promises claims processing in 10 days (within 5 days of receipt) while Promedent processes claims in ~30 days, and the turnaround time might come in handy for feedback and getting things right.

Large medical expenses usually trigger audits, so we’re going to carefully file all the receipts, dot all the is, cross all the ts, and Scan All the Everything! I’m a little worried about what the CRA considers a reasonable health benefit for a corporation, but I may as well claim whatever I can and then work things out.

Let’s see how this goes!