One of the most important reasons why business owners should ensure that their calculating source deductions correctly says Emden bookkeeping is because the penalties for submitting the wrong amount are quite high. Not only is the penalty for submitting the wrong amount hi, but penalties for submitting remittances late is also high as well. Since most businesses struggle with finances especially in the beginning, incurring additional penalties unnecessarily can further set a business back. Even 29% of all failed entrepreneurs say the reason why they failed is that they ran out of money. Avoiding penalties by learning how to do it accurately can help ensure that an entrepreneur is not incurring payments that they can avoid.
In order to ensure that a business owner is remitting the correct amount of source deductions, Edmonton bookkeeping says that business owners need to be aware of all of the various payroll taxes they need to withhold and how much withhold. There are five components that business owners need to be aware of. First of all, there is an income tax that needs to be calculated. Then there is the employee portion of CPP and EI, but there is also the employer portion of CPP and EI as well. Many entrepreneurs when they are new in business do not realize that there is also a component of source deductions that need to be sent to Canada revenue agency on behalf of the business, which is in addition to the source deductions that the entrepreneurs withholding from their own check.
If a business owner is calculating this incorrectly but submitting the remittances on time every month, they may not hear back from the Canada revenue agency until they file their T4 slips. The number of source deductions that are not been or should have submitted will be written on their T4, and if the total on the T4 does not match but an entrepreneur has paid, Canada revenue agency will send the business owner letter asking for them to explain why. If an entrepreneur cannot explain it, this will trigger a payroll audit. The payroll audit will involve an auditor wing over all of the payroll information in the business for the entire year.
If an entrepreneur wants to avoid a payroll audit, but they are worried that they have not permitted enough source deductions throughout the year, prior to filing their T4 slip, they can look at how much they owe compared to how much they paid. If they can remit the amount left owing to Canada revenue agency prior to January 15, they can avoid having a discrepancy when they file their T4 slip and avoid a payroll audit says Edmonton bookkeeping.
Not only can remitting source deductions correctly help an entrepreneur avoid an audit and avoid penalties, but having a plan in place including checklists can help ensure that an entrepreneur does it consistently every single time, that they can hand off the responsibility to employee as they grow so that they can spend more time on accomplishing all of the tasks in the business they need to focus on in order to continue growing their business.
Edmonton Bookkeeping | Correctly Calculating Source Deductions
While it may be very simple for entrepreneurs to learn how to calculate and remit source deductions accurately says Emmett in bookkeeping. Creating a plan ahead of time is important to ensure that there have systems in place in the business and that an entrepreneur is prepared to do all of the things consistently. A good in checklists can help ensure that an entrepreneur can hand this off to other directors or employees as they grow, and have it done correctly all the time and avoid problems.
One of the first things that business owners should take into consideration when creating a plan around how to calculate and remit payroll taxes, is that they should have a buffer of source deductions in their bank in case they have financial difficulties. Edmonton bookkeeping recommends that entrepreneurs not only keep a month’s worth of salaries in their bank account, they also have enough to remit source deductions. That way, if an entrepreneur hits financial difficulties, not only can they continue to pay their staff, but they can submit the correct amount of payroll remittances so that they do not get in trouble with the Canada revenue agency. If they do not have source deductions set aside for this, their financial difficulties might be made worse if there hit with penalties.
Not only is it important for entrepreneurs to avoid penalties and they having financial difficulty, but it is also important to note that Canada’s revenue agency is quite aggressive in collecting remittances and penalties. Ten bookkeeping says the reason for this is because Canada revenue agencyís consider source deductions trust fund money, and not money that an entrepreneur should be using to run their business.
With Canada revenue agency collecting the money aggressively, the business owner should also be aware that all directors of the corporation are personally liable for payroll taxes well. Therefore, if they are unable to submit the correct amount, the Canada revenue agency will go after the directors personally as well. Because of this, Edmonton bookkeeping recommends that entrepreneurs only have one spouse as a director especially if they own a risky business. That way, if the Canada revenue agency is going after the director of the corporation to collect payroll tax from, they can only come after one spouse and not both. This can help ensure that an entrepreneurís protecting their assets including their house and saving accounts.
Because Canada revenue agencyís view source deductions very seriously, the penalties are high and they collect aggressively in order to act as a deterrent. If entrepreneurs are scared enough of the penalties, they will ensure that they are consistently submitting the correct amount and submitting it on time. By creating a plan ahead of time can help entrepreneurs ensure that they are meeting all the correct criteria, consistently. This can give them the peace of mind they need to focus their time and attention on the strategic priorities they need to accomplish in order to grow their business.