In order to help entrepreneurs ensure that not only are they paying tax correctly says Edmonton bookkeeping. But they are keeping track of the taxes that they pay accurately. They need to understand the difference between tax payable accounts. And what tax expense accounts are.
The tax expense account is for the total amount of taxes that the entrepreneur owes. Should be calculated and kept track of.
The tax payable account on the other hand. Is keeping track of all of the different payments that an entrepreneur makes on all of the different taxes that they owe.
As an entrepreneur makes tax payment, they enter it into their tax payable account. Which is deducted from their tax expense account, decreasing the overall amount of taxes that the entrepreneur owes in their business.
It is very important for an entrepreneur to pay taxes in instalments says Edmonton bookkeeping. Because that will ensure that they are always putting money aside for the taxes that they will eventually owe. Since the taxes that they owe only gets calculated once a year.
By making consistent payments. Business owners can be certain that when their taxes are calculated at the end of the year, have already made many payments towards that amount.
However, it can be a bit more complicated than just having one tax expense account and one tax payable account. Because there should be a different tax payable account. For all of the different taxes that an entrepreneur needs to pay once they incorporate.
One surprising thing that many business owners may not realize when they first open their business. Is that they should have a federal tax payable account as well as a provincial tax payable account.
Unlike every other province, Edmonton bookkeeping says Alberta has their own provincial tax department. That business owners must send payments to directly.
In other provinces, business owners must send all of their provincial and federal taxes directly to the Canada revenue agency. Who figures out how much they owe and provincial taxes, and sends that amount to each provincial government on the business owner’s behalf.
However, Edmonton bookkeeping says it is more than just having to tax payable accounts, one for federal and one for provincial. But that the federal tax payable accounts need to be broken up into all of the various federal taxes that an entrepreneur owes.
While some business owners think that this means GST, and payroll should be broken up. It is actually that the payroll account should be broken up into separate accounts as well. Because of all of the different payroll taxes that an entrepreneur ends up having to pay.
Not only does in entrepreneur have to pay EI and CPP. But they have to pay the employer and the employee portion of those taxes. Meeting the payroll tax is going to end up being in four separate counts itself. Then GST, federal, and provincial accounts.
Understanding all of the different tax accounts. Can help entrepreneurs book those payments correctly. So that they always have a correct running total. Of all the taxes that they are paying throughout the year.
Do you need help with your Edmonton Bookkeeping
While many business owners understand that it is important to pay taxes correctly says Edmonton bookkeeping. They need to be making tax instalment payments throughout the year.
While there tax expense that they owe the government’s. Are calculated by their accountant at their corporate year-end.
Business owners need to ensure that they are making regular tax instalment payments. So that when they have finished paying last year’s taxes. They can start making contributions towards the current years tax. That will be calculated at their future year end.
One important thing to take note of, is that while the instalment payments that business owners are making on their taxes. This should never show up on their profit and loss statement.
The reason why, is because the tax payments are not an expense of the business. And if an entrepreneur puts their tax payments on their profit and loss statement. It can make their profit look much lower than it should be.
For example, Edmonton bookkeeping says that if an entrepreneur has managed pay ten thousand dollars in taxes in a single month. If it is on their profit and loss statement. Will end up showing that they have lost ten thousand dollars when this is not the case.
Therefore, business owners need to ensure that they never book their tax payments in their business accounts. It should always be kept separately. Even though their accounting software made default to another account.
By listening to their Edmonton bookkeeping company, and ensuring that they do not accept the default account for taxes. That there accounting software wants to use.
Business owners can ensure that they are keeping track of the taxes that they are paying. And that those taxes are not commingling with each other as well.
When thing that business owners need to keep in mind when they are making tax instalment payments. Is that when it comes to their corporate tax instalments.
Their profits need to be higher than those payments. So that they know that they can pay for all of their expenses. As well as make that instalment payment.
For example, if they are paying in thousand dollars a month, they need to have a profit of more than a thousand dollars a month. In order to be able to make that commitment to the government.
However, when it comes to payroll and GST taxes. A business owner does not have to ensure that they are making a profit higher than that payment. Because GST as well as payroll taxes. Come off of the money that they already have.
For example, the amount of GST that an entrepreneur pays. Is calculated by how much GST the entrepreneur has brought into their business. Therefore, they do not need to profit over and above that tax payment.
But simply that they are keeping that money separate. And booking it accurately. So that they can remit it properly. And account for it in their software.
Learning how to keep their tax payments separate. Can help ensure that the rest of an entrepreneurs financial statements are accurate. So that they can make the best financial decisions possible.