Tax time is here once again for businesses and employees. It is not the most fun time of the year, and I have found that using Google to figure out information about how to file your taxes does not help -- a lot of incredibly large words are thrown around in most of the articles you'll find on there. So, I thought I would do a little write-up of a few of the things that I have learned while doing my taxes that I wish I had known from the very first day of opening my business.
1. Keep an opening inventory and a closing inventory. This is a list of all of the items that you use to make your products, anything you use for packaging and shipping your products, and any finished products that you have ready to sell. Document how much you have of everything that the beginning of the year, and at least once more during the year -- in December. Because any left-overs in the closing inventory will make it so you have a little bit less tax to pay.
2. Keep all of your receipts. This is to prove that you have indeed purchased those new pencils with which to create your drawings, the resin that you have used to make your jewellery, or even the product packaging and shipping envelopes that you used to ship your products. Because anything that you have bought for your business that does not have a receipt cannot be claimed on your tax forms, and that does not benefit you at all in the long run -- meaning you will have to pay more in taxes than you had hoped.
3. Keep accurate documentation of all goings on in your business. This means that if you are claiming anything like using your home or personal vehicle for business use that you need to keep a log of when you use it, mileage, etc. Also, keep proper documentation of your business expenses such as advertising, office supplies, shipping costs, Etsy fees, Paypal fees, and any other fees you may have in a spreadsheet or using a program that allows you to input that information -- check out Quickbooks or Xero to get you started.
4. Don't be afraid to ask for help. If you are fortunate enough to know an accountant or someone that has a business, don't be afraid to ask them to help you out. They might be experts at using Excel and can help you start a spreadsheet. They will also have a lot more tips for you when it comes to doing your taxes. A business owner would have been through it before, and your accountant friend might have audited or helped other businesses get through tax time.
If you live in Canada, here are two great links to get you started. The first one is for Form T2125 for your Statement of Business or Professional Activities, and the second one is for the guide to help walk you through filling out the form -- it was really helpful.