When it comes to managing their finances and navigating the complex terrain of taxes, there are some common pitfalls that pharmacists and pharmacy business owners often find themselves in. To help you avoid making common mistakes, below are some of the most common ones.
Inadequate Recordkeeping
Despite good intentions, many pharmacists don’t maintain adequate recordkeeping, either because there aren’t enough hours in a day, or because they’re unaware of the level of detail required. It’s easy to lose track of expenses and income, and many pharmacists don’t realize how critical it is to be on top of every transaction, not just for compliance, but to enable tax opportunities as well. Meticulous records of purchases, sales, and overhead costs, must be kept.
Misclassification of Income
Pharmacists may receive income from various sources, including employment, consulting, or dividends from their pharmacy business. Misclassifying an income source on tax returns can lead to errors in tax reporting, especially sales tax, resulting in overpayment or underpayment of taxes.
Missing Eligible Deductions and Credits
Pharmacists, especially those who own their pharmacies, may overlook eligible deductions available to them. In Canada, there are some unique and underused tax opportunities available to those in the pharmacy industry, as well as many business-related tax reductions, such as the small business tax rate. Pharmacists and pharmacy owners often miss these and other tax opportunities, paying more than necessary.
Not Leveraging Capital Cost Allowance (CCA)
Pharmacy owners often aren’t aware of the CCA, a tax deduction to claim depreciation, or don’t have adequate documentation to support claims. Eligible assets could include pharmacy display furniture, security systems, computers, POS equipment, prescription compounding equipment and workstations, refrigeration units, and more.
Inefficient Tax Planning
Without adequate tax planning, there isn’t enough time to implement good strategies before tax season. Only thinking about tax opportunities when filling out a tax return is too late to create an optimal strategy. This means that they are unable to leverage tax-efficient structures and take advantage of available tax credits and deductions.
Not Meeting GST/HST and PST Obligations
Pharmacy owners need to be diligent about meeting GST/HST and PST requirements, registering for GST/HST/PST if necessary and collecting and sending in accurate taxes for compliance.
Calculating Drug Inventories Incorrectly
Drug inventories are other sources of pitfalls. Incorrectly valuing an inventory and not considering expired or spoiled medications can lead to inaccurate financial statements and tax filings. Furthermore, appropriately and consistently applying calculation methods such as applying lower of cost or market value principles is complex because of fluctuating market prices, obsolescence factors, and other factors. Pharmacy owners also often fail to have adequate documentation to support numbers, and can miscalculate market values
Not Staying on Top of Changes in Tax Legislation
Tax laws are constantly changing, so staying informed is essential to avoid non-compliance and maximize tax savings. While this is important for everyone, it is especially critical for those in the pharmacy industry where the interplay between tax opportunities and rules is particularly complex.
How Pharmacy-Specialized Accountants Can Help
Understanding tax regulations and how to maximize tax savings based on your individual situation while staying compliant is a complex business. Especially for pharmacists, it demands specialized expertise. A professional accounting firm with the right expertise can greatly help you avoid these common tax mistakes and help with your overall financial well-being, with specialized accounting and bookkeeping, tax planning, tax filing, and business planning services.
Misclassification of Income: Professional accountants understand the nuances of the different pharmacy-related income sources to prevent misclassification and clarify any tax implications for each.
Missing Eligible Deductions: Professionals with pharmacy industry expertise have the knowledge to help you identify and claim all eligible deductions, including pharmacy-specific and not commonly-known ones.
Inadequate Record-Keeping: Bookkeeping services ensure comprehensive record-keeping and efficient systems, for complete, organized and accurate records.
Ignoring Capital Cost Allowance: Accountants familiar with CCA intricacies and pharmacies can help identify and assess all assets for depreciation.
Inefficient Tax Planning: Although many tax agencies focus only on tax filing, which doesn’t help with planning to optimize tax returns, a company which does create personalized tax strategies and provide ongoing support for proactive tax planning will enable greater tax saving opportunities.
Ignoring GST/HST Obligations: To be sure you aren’t missing any of your GST/HST obligations, an accountant can guide you through registration, tracking, and proper tax collection and remittance, for simple and correct compliance.
Calculating Drug Inventories Incorrectly: Professionals specializing in pharmacy finances can guide proper inventory valuation methods. They ensure pharmacy owners adhere to Canadian tax rules, preventing errors in financial statements and tax filings related to inventory valuation. Regular reviews and adjustments are part of their proactive approach.
Not Staying on Top of Changes in Tax Legislation: A good accounting firm continuously monitors ongoing updates and changes to tax regulations, advising pharmacists promptly on how to adapt their financial strategies proactively.
The skilled professionals at Pharma Tax have specialized expertise in pharmacy-related accounting, providing personalized solutions for pharmacists. With a deep understanding of pharmacy intricacies, Pharma Tax tailors services and advice to your unique situation, for optimized finances and maximized opportunities. Thrive financially with pharmacy-specific strategies and tax-compliant, sound financial practices.
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