This is a note out there for my photography friends as well as any other small businesses who are collecting GST. As a rule of thumb, we all like to pay as little in taxes as possible. GST, unlike income tax, is a simple in-out equation. While some people feel like when they owe GST at the end of the quarter or year they are losing "income" the truth is that it was never your money to begin with, and if you owe GST it simply means that you collected more GST than you spent. Translation? You a) made a profit or b) need to buy more things in Canada so you can claim input tax credits (ITCs).
Unfortunately, lots of small business owners and sole proprietorships deposit their GST in the bank and spend it, resulting in a huge IOU to the feds and no cash to cover it. Here are a three easy tips that will help you avoid getting caught grabbing your ankles with your pants down.
1) Deposit GST in a separate account as it is collected. Rather than depositing your GST in the same account as your income and expenses where it can deceive you into thinking you have cash to burn, you might want to consider stashing it away in a separate account. The easiest way to do this is to go directly in to the bank to make your deposits or develop a habit of logging in to your online banking after depositing funds and manually transfer the GST the same day. Keeping your GST completely separate will make it 100 times easier for you to not accidentally spend the GST you've collected, especially if you aren't keeping your books regularly.
2) Opt in to file quarterly instead of annual GST returns. Lots of small businesses do what bookkeepers refer to as "shoebox accounting" meaning, you throw all your receipts into a figurative (or maybe literal) shoebox and hand it over to your accountant or tax prep guy when it's time to file your annual return. By signing up for quarterly remittances you will get into the habit of setting aside a few hours once every 3 months to track your income and spending. The bonus side effects of filing quarterly are smaller GST payouts and pretty good idea of your company's success!
3) Learn how to keep your own books. I assure you that in tax prep world, every person who gets handed that "shoebox" dies a little on the inside. You don't need to be a certified accountant to do your own bookkeeping, and with so many options ranging from free to still totally affordable software out there, you're sure to find one you love. Wave and Google Drive spreadsheets are my personal favourites, but you may want to check out Quickbooks, Kashoo, Studiocloud, Freshbooks... While it might take a bit of trial and error figuring out which one works with your business model and budget, the awesome part is when it's time to file your GST instead of having to manually wrangle a huge stack of receipts and contracts into some kind of order so you can do manual calculations, you simply hit "Print GST audit report" and it's all done for you. Ba da bing.
I teach basic bookkeeping using Waveapps. If you're interested in joining us for a day of guided tax prep on Saturday, February 15, 2014, please feel free to sign up here or contact me via the form on this blog. Cost is $150/person with a maximum of 8 participants.