When you’re preparing your tax returns, you want to ensure you prepare your tax returns in such a way that the Canadian Revenue Agency doesn’t approach you for a tax audit. Business owners have described a CRA audit as an unpleasant, difficult situation and we believe it is best avoided. CRA audits only happen when their officials sniff some wrongdoing or tax evasion. While those who have done nothing wrong need not worry about a CRA audit. But, it must be said that those who make honest mistakes will be penalized anyway. Here, we intend to explore what exactly triggers a CRA audit and how you as a small businesses owner or a self-employed person can avoid the prospect of a CRA audit.
Please File Your Returns
Do file your tax returns. Don’t make the fallacy of assuming that you would successfully escape a tax audit if there is nothing to audit in the first place. The CRA is aware of those people who are supposed to file a tax return and sends them regular reminders just in case it slips out. Those who don’t file their returns don’t merely risk being penalized, they also risk going to jail. And, finally, when you do file your returns, the CRA would most certainly use their magnifying glass to inspect your accounts in any case.
Report Your Income Accurately
You must report all your income with utmost accuracy to prevent the chances of a CRA tax audit. That’s simply because CRA has access to all information regarding the payments and slips that you’ve received. The only way to prevent being audited is by being regular with your bookkeeping and record maintenance. You can consider double-checking your figures if they don’t make sense, you can also consider comparing the income you incurred last year to this year’s income for perspective.
Be Vary of Cash Transactions
Don’t consider the option of accepting payments in cash. While it’s true that you might get away with a couple of cash transactions, offering your products or services for cash is a dangerous practice. There have been instances where customers haven’t refrained from discreetly reporting those entities that attempt to evade tax by going for cash transactions. Accepting cash payment for transactions is a CRA audit trigger one should look to avoid.
Remain Consistent with Expenses
It’s best to remain consistent and factual with the expenses that you incur. Don’t file your personal expenses, consult a professional for help to understand what expenses you can and cannot account for, and remain honest about the expenses that you do incur. For instance, if the CRA officials notice a significant uptake in the entertainment expenses you’re incurring, it may well end up triggering a CRA audit.
The easiest way to avoid a CRA tax audit, however, is by having a professional financial management company handle your tax returns. We at Integrated Business Accounting Solutions, provide our services to encompass the needs of our clients who simply want to conduct their business without having to worry about the prospect of a CRA tax audit. Contact us to get started!