When it comes to running your own small business, you’re probably aware of a lot of the things that you need to know. However, when it comes to accounting and taxes, most business owners have questions. This is mostly because many business owners and individuals have heard some small business accounting myths that may or may not be true.
You may have even heard some myths or rumours about small business accounting that didn’t make much sense. Fortunately, as the owner of your own company you don’t need to take anyone’s word for anything. Instead, you can prove them wrong by being informed about the facts related to small business accounting. Let’s take a look at the debunking of 7 common myths around small business accounting:
Fact-Checking The 7 Most Common Small Business Accounting Myths
Let’s take a look at the 7 most common small business accounting myths and whether they are true:
Myth 1: Small Businesses Don’t Pay Taxes
This is one of the common accounting myths that is completely false. First, all businesses have to file taxes and send money to the government. This is how they earn the right to remain in business. Even though you may be operating as a sole proprietorship or an incorporated business, you are still liable for taxes. When it comes to small business accounting, the difference is that your profits are taxed at a lower rate than they are for large businesses. This is because small businesses are viewed as being more likely to create jobs and fuel economic growth. That being said, you will still need to pay taxes on your company’s profits.
Myth 2: Your Business’s Tax Rate Is Always 30%
This is one of the most common accounting myths. In fact, your business’s tax rate is determined by a variety of factors. For example, if you have a lot of start-up expenses you might be in a lower tax bracket. On the other hand, if you have a lot of passive income you may pay a higher tax rate. There are other factors that can also affect your business’s tax rate. Because the tax rate for small businesses is complex, it’s best to work with an accountant to determine your company’s tax bracket.
Myth 3: You Can Write Off Everything At Tax Time
It’s true that you can write off a lot of expenses related to owning and running your own business. However, it’s important to understand that you can’t write everything off. You should only write off legitimate expenses that are related to your business. Managing your small business accounting will certainly enable you to write off a lot of expenses. This is because most small businesses don’t have a lot of money to invest in the beginning.
Myth 4: Tax Time Means A Lot Of Added Stress For Small Businesses
Tax time can be stressful, but it doesn’t have to be. As long as you have a good accountant and a good system for tracking your expenses and income, you can make tax time really easy. Ideally, you should start tracking your expenses and income as soon as possible. This will make it easier to find information when you need it and will also allow you to make adjustments to your business as necessary.
In fact, tracking your expenses as you go can be an important part of managing your small business accounting as a whole. It’s also important to note that even if you don’t have a lot of money to pay for accounting services, they will often pay for themselves by finding you tax savings and consulting about your finances throughout the year.
Myth 5: It’s Easy To Pay Both Employees And Contractors On Payroll
It can certainly be easy to pay your employees with payroll. However, paying contractors is another story entirely. Many small businesses choose to pay contractors ‘under the table’. This is a very common practice because it’s easy and fast. Unfortunately, it also comes with some major pitfalls.
Employees are generally required to pay payroll taxes, receive benefits and have workers’ compensation coverage. Contractors, on the other hand, don’t have to do any of these things. As a business owner, you are liable for any taxes, benefits and other requirements. This means that paying contractors ‘under the table’ can be very expensive in the long run, especially when the CRA finds out. It’s best to protect yourself and your business by ensuring you follow CRA guidelines.
Myth 6: Small Businesses Always Struggle With Cash Flow
This is another myth that is actually quite common. In fact, many business owners are worried about running out of cash. The truth is that most businesses do have enough cash. This is because most businesses receive the majority of their income upfront. This means that you should be careful about what you promise and when you promise it. It’s important to make sure that your accounting and budgeting line up. This will help prevent you from promising too much and not having the cash to pay for it.
Myth 7: Small Businesses Don’t Need An Accountant
This is certainly one of the most common accounting myths. In fact, small businesses need bookkeepers and accountants as much as, if not more than larger businesses do. This is simply because it’s much easier to make mistakes and overlook things when you only have a few employees. There are a few things that you should look for when choosing an accountant.
First of all, make sure that they are properly certified and licensed. Second, make sure that they specialize in small businesses. It’s also important to find an accountant that you can trust. This can be especially important if you are trying to grow your business. Be sure to check their online reviews, ask for references, and interview them so that you can determine if they are a good fit.
It’s important to remember that running a small business is hard work. You’ll be doing everything from accounting to marketing. This means that you should be especially careful about making sure that you don’t make any mistakes and don’t fall into these common myths about accounting. To do this, you’ll need to work with an accountant or bookkeeper, and use the best small business accounting software you can afford.
Get a complimentary consultation with the Intrepidium Team to learn how we can help you avoid costly accounting myths and mistakes, implement the right solutions, and thrive as a business. Call today 778-800-7976.