Top Tax Mistakes Small Business Owners Make—And How to Avoid Them

Introduction: The Hidden Cost of Tax Mistakes

As a small business owner in Ontario, you're wearing a lot of hats—CEO, salesperson, bookkeeper, and everything in between. But when it comes to taxes, even a small oversight can lead to costly penalties, missed deductions, or even a CRA audit.

At Henderson Roller Partnership in Oakville, we’ve worked with hundreds of entrepreneurs who started out trying to handle their business taxes themselves—only to discover that what they didn’t know was costing them time, money, and peace of mind.

In this guide, we’ll explore the most common small business tax mistakes—and more importantly, show you how to avoid them with proactive planning and expert help.

1. Mixing Personal and Business Finances

❌ The Mistake:

Using one bank account or credit card for both personal and business expenses.

🚫 Why It’s a Problem:

• Makes bookkeeping messy and error-prone

• Can result in missed deductions

• Triggers red flags during CRA audits

✅ The Fix:

• Open a separate business bank account and credit card

• Track all income and expenses through business-only channels

• Use cloud-based accounting software to stay organized

2. Missing Legitimate Business Deductions

❌ The Mistake:

Leaving money on the table by not claiming eligible expenses such as:

• Home office space

• Vehicle use

• Cell phone/internet

• Professional fees

• Marketing and advertising

🚫 Why It’s a Problem:

• Increases your taxable income

• Decreases your cash flow

✅ The Fix:

• Keep detailed records and receipts

• Work with a CPA to identify industry-specific deductions

• Don’t rely solely on tax software—it won’t catch every opportunity

💡 Pro Tip: The CRA requires expenses to be reasonable and directly related to business activity. When in doubt, ask an expert.

3. Failing to Track Mileage or Vehicle Use

❌ The Mistake:

Using a personal vehicle for business but not tracking mileage.

🚫 Why It’s a Problem:

• You can only deduct the business-use portion of fuel, insurance, maintenance, and lease payments

• Without a log, CRA may deny the entire deduction

✅ The Fix:

• Use a mileage log app (like MileIQ or QuickBooks)

• Record date, destination, reason, and kilometers driven

• Keep all vehicle-related receipts

4. Filing Taxes Late (Or Not At All)

❌ The Mistake:

Missing tax deadlines for GST/HST, payroll, or income taxes.

🚫 Why It’s a Problem:

• Triggers late penalties and interest

• May lead to CRA collection actions

• Affects your creditworthiness

✅ The Fix:

• Know your key deadlines (corporate taxes: 6 months after year-end; HST: quarterly/monthly)

• Use calendar reminders or accounting software

• Partner with a CPA to keep you compliant

📌 Bonus Tip: Even if you can’t pay your tax bill in full, file on time to avoid extra penalties.

5. Improperly Classifying Employees vs. Contractors

❌ The Mistake:

Labeling workers as "contractors" to avoid payroll taxes—without following CRA rules.

🚫 Why It’s a Problem:

• CRA may reclassify them as employees

• You’ll owe back taxes, CPP, EI, and penalties

✅ The Fix:

• Review CRA’s guidelines for employee vs. contractor status

• Have a written contract for all independent contractors

• If in doubt, consult a tax professional

6. Forgetting to Collect or Remit HST

❌ The Mistake:

Earning over $30,000 in annual revenue and not registering for HST.

🚫 Why It’s a Problem:

• You're required by law to collect and remit HST once over the threshold

• Failure can lead to backdated taxes and interest

✅ The Fix:

• Register for an HST number once you approach $30,000 in revenue

• Charge HST on invoices

• File HST returns on time (monthly, quarterly, or annually)

💡 A CPA can help you structure your pricing and invoices correctly—and ensure compliance.

7. Neglecting to Plan for Taxes Throughout the Year

❌ The Mistake:

Waiting until tax time to find out what you owe.

🚫 Why It’s a Problem:

• Creates cash flow stress

• Increases risk of missed payments or under-remitting

• Leaves no time for tax-saving strategies

✅ The Fix:

• Set aside 15–30% of income throughout the year for taxes

• Meet with your accountant quarterly to stay on track

• Use real-time reporting tools to monitor profitability

8. Not Incorporating When It Makes Sense

❌ The Mistake:

Staying a sole proprietor even as your business grows.

🚫 Why It’s a Problem:

• You're taxed at personal rates, which can be as high as 53.5%

• No limited liability protection

• You can’t defer or split income

✅ The Fix:

• Talk to a CPA when your net income exceeds $80,000–$100,000

• Incorporation can reduce your tax rate to 12.2% (Ontario Small Business Deduction)

• It also opens the door to income splitting, better retirement planning, and business succession

9. Doing It All Yourself

❌ The Mistake:

Relying solely on DIY software or spreadsheets, especially with complex business finances.

🚫 Why It’s a Problem:

• You may miss out on deductions

• Risk incorrect filings

• CRA audits become harder to manage

✅ The Fix:

• Partner with a CPA who understands your business and industry

• Get year-round support—not just tax season help

• Focus on growing your business, not second-guessing your books

How Henderson Roller Partnership Can Help

Located in the heart of Oakville, Henderson Roller Partnership is trusted by entrepreneurs and business owners across Ontario to help with:

✔️ Tax planning and filing

✔️ Corporate structure advice

✔️ HST and payroll compliance

✔️ Audit support and CRA communication

✔️ Bookkeeping and financial reporting

We don’t just file taxes—we help you build a healthier, smarter business.

Conclusion: Avoiding Tax Mistakes Starts with Good Advice

You didn’t start a business to become a tax expert—but we did.

Avoiding these common tax errors can save your business thousands of dollars, improve your financial clarity, and free up your time to do what you do best.

Need Tax Help for Your Small Business in Oakville?

📍 Visit Henderson Roller Partnership📞 Call to book a consultation💻 Or schedule online and start your tax season stress-free

Henderson Roller – Trusted Tax Experts for Ontario Entrepreneurs.