For anyone starting a business, detailed record keeping is one of the most important ways to avoid tax complications. Here are 3 tips to help you get started:

1. Look in the rearview

If you don’t already track your finances, you will need to recreate your tax records. The process begins by searching back through bank statements and other financial records, which can be painstaking and time consuming. To complicate matters further, if you’re an owner-manager and haven’t kept receipts for your expenses or driving logs, you will find yourself at the mercy of the Canada Revenue Agency.

In cases like this, a seasoned financial advisor can help make estimates for clients, but that comes with a big warning: if the CRA does decide to take a closer look and finds discrepancies, there’s little you can do to prove otherwise. That’s why it pays to keep receipts and to document your transactions thoroughly.

2. Know the rules

For simpler businesses, saving receipts and preparing an annual summary of revenues and expenses is usually sufficient record keeping, but if you have a high volume of transactions or more complex financial dealings, you will need some kind of accounting system and possibly the assistance of a bookkeeper.

It is common for new entrepreneurs to have a hard time understanding increasingly complicated compliance rules. In addition, government bodies don’t provide a lot of practical information, leaving the onus on business owners to understand rules and remitting requirements related to HST, payroll deductions, corporate taxes and a myriad of other regulations that impact businesses.

If you don’t take the initiative to understand these issues and are late on your government filings, this is usually seen as an invitation for an audit. Other “red flags” that can lead to queries from the CRA are big variations in income or expenses from one year to the next.

The CRA may also intervene if you are regular remitters of HST, and then suddenly apply for an HST refund. This may be completely innocent, but it can trigger questions from the CRA—and sometimes even an audit.

3. Plan ahead

As an entrepreneur, the best way to avoid tax confusion is to be proactive. You should meet with an accountant when launching your business, and on an annual basis thereafter. We believe that proactive planning is the best way to stay in front of tax matters. There is often little that can be done to change the past but you can always plan for the future.

What’s happening in your business in the next year? What’s happening in your personal life in the next year? How can we plan to minimize your tax burden accordingly?

David Wells, CPA, CA, CFP, BBA, has extensive experience providing tax, consulting and assurance services to healthcare professionals and owner managed business clients. He is a partner at Collins Barrow KMD LLP.

Connect with him via email at dwells@collinsbarrow.com.

*Expert Series blog posts are the result of a collaborative effort between partners and the National Marketing Team.