When it comes to bookkeeping basics, it’s important to focus on tax time all year round. One of the best bookkeeping basics and overall accounting tips is that it pays to always be thinking about taxes. Even if you’re far away from having to actually complete your tax return, preparing your books in a way that will make doing taxes easier will save you time. Sure, it might be a little extra work right now, but that work will pay off in the long term.
This is true whether you have a relatively straightforward financial situation or a more complex one.
Keep Paperwork Organized
One accounting practice you’ll want to make sure to follow is keeping receipts, invoices and other relevant paperwork. Organizing this paperwork as it comes in will make it much easier for you to find it once tax time rolls around. This will prevent you from having to sort through filing cabinets and stacks of paper to get the documents that you need when you’re trying to complete your return.
Develop a method for handling and organizing paperwork and for entering this data into your books. For example, place all documents in a binder and enter them into your bookkeeping program as you receive them. This includes receipts for purchases, tax receipts for charity donations, invoices for money spent on professional services, etc. Keep track of everything, write down everything and correctly file everything, no matter how small.
If you follow these bookkeeping basics and if you are accurate and organized with filing and record keeping, you won’t end up with a mess of random receipts in shoeboxes when it’s time to do your taxes. This saves time, reduces stress and will make your tax return more accurate. If you have all of your receipts, you’ll be much more likely to be able to successfully claim all the deductions you’re entitled to.
Track Your Expenses
If you run a business or do contract work, you’ll need to make sure that you keep your personal financial records separate from your business records. This can be difficult if you use a portion of your home as your office or if you use one credit card for both personal and work purchases. You can make this situation easier by always keeping accurate and up-to-date records. Keep a record of all business purchases as you make them. This will prevent having to sort through all of your purchases when tax time comes around.
Accurate records also help you a great deal if the Canada Revenue Agency ever decides to audit your return. Remember, you need to keep income tax records and supporting documents for six years. Even if you are not sending these documents to the CRA when you file (such as cases where you file your taxes electronically) you’ll need to keep documents and receipts in case the CRA requests them later on.
Want to know more or need assistance? Please contact Tax Solutions Canada today at 1-888-868-1400.