It is an easy trap to fall into when you are in a self employed situation to mix your personal finances with your business finances. While this may seem like an innocent thing to do and means a lot less bookkeeping, it can also be a very dangerous situation to be in financially. To begin with when it comes to Canada taxes the CRA expects you to keep good bookkeeping records for your business entity. It doesn’t matter whether it is a large corporation, sole proprietorship, or just the fact that you are self employed. As such, these financial records should not include your personal financial dealings.
It means having to set up accounts for your business. You should have a separate bank account. This is where your business income and expenses will be taken care of. If you are going to use a credit card then get one in your business name, or at the very least keep one of your cards for business only
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It may seem like a hassle to go to this extra trouble now, but not near the hassle when it comes tax time and you have to do your financial accounting. Trying to sort out your financial business dealings from your personal one will be an absolute nightmare.
No doubt the operation of your business takes up the majority of your time. We all know that accounting responsibilities can be time consuming and perplexing. You can take care of this by hiring bookkeeping services. Now of course we all want to keep our expenses down for our business but you need to think of your time as money. If you equate all of the hours that you will need to expend on your financial recordings how much would that equate to in your personal time? Compare this with the cost of a bookkeeper’s service and you probably will discover it is a great investment.
Not only do you have to look at the time saved but having your records well organized and separated from your personal financial affairs will give you a much clearer picture of exactly where your business stands financially and how well it is doing. It will also allow you to budget much easier. When you put your business income into a separate bank account you are far less likely to spend it on personal needs. That doesn’t mean that you can’t make withdrawals from your business account to tend to your personal responsibilities but this money has to be accounted for from a tax point of view.
Preparing financial states for the year end taxes is not all that easy and you will most likely want to rely on a quality Toronto tax accountant to assist you with this. If you have well kept records the rates for these services will be much more affordable than if the accountant has to sort through a cardboard box of papers full of personal and business financial dealings.
