Last updated on March 29th, 2021. Posted in Additional Business Ingredients.
Taxes! Can you think of a more exciting topic? Well, as small business owners this is a very important topic. I'll do my best to keep this short, sweet, and informative.
Here are links and resources mentioned in today's video. Enjoy!
A better title, to draw viewers in, is something like A Single Mistake That Could Wipe Out Your Business
And so right off the bat, you've gotta make sure that you understand your local tax laws -- yes, even if you're running an online business that resides soley on the web. Whether you know it or not, as a small business owner, you are now a tax collector for the government. And when they come looking for their money, you'd better have it!
So for example, as a business operating in Ontario Canada, I have to charge provincial sales tax to any customers in Ontario; and I have to charge HST to any customers in Canada. That's just the law. Any sales outside of Canada do not fall under Canadian law and are therefore not subject to Canadian taxation. How do I know this? I have one of the best accountants in the area, that's how!
So imagine this: Imagine I'm ignorant to the law, and I sell $100,000 worth of product. After expenses, I take a $75,000 profit. Where does that money go? It goes towards living expenses, maybe a trip, some goes into investments, and the rest I spend on books, art supplies, and Richards Red. At the end of the year, there's $0 left. But then I do my taxes and Canada Revenue Agency says, "You sold $25,000 worth of product in Canada. HST = 13%. You owe us $3250, due immediately." I unwittingly spent the government's money...mostly on beer. Remember, we're tax collectors. As a small business, we were supposed to collect taxes on applicable sales on the government's behalf...it was never our money in the first place.
And you know what? This kinda stuff happens all the time. There are all sorts of stories of celebrities getting themselves in trouble with the IRS for unpaid taxes.
So where do you learn about this stuff? It isn't rocket science, it's just dull. Ask your accountant or bookkeeper, or look it up on your government's website. It's widely-known knowledge and isn't hard to handle.
And what do you get in exchange for being a government tax collector? Well, you get to write off a ton of stuff as business expenses. Again, consult with your accountant or bookkeeper. If your running your online business from home, then you may be able to partially write off all sorts of things as business expenses...including a portion of your utilities, property tax, your vehicle, and more.
What I suggest you do is that for any sale that is subject to taxation, put that money aside in a separate bank account as soon as you receive the funds. Myself, I move the money into a high-interest savings account, so at least I'm making a tiny bit of interest off the government's money. When tax-time rolls around, I simply withdraw their money and hand it over to them...and keep any interest I've earned.