The Internet has transformed the world into a global village and has let a lot of businesses thrive without having a physical location. Online accounting/ Online bookkeeping has now become a thing. Well, this also called for regulations and taxes to be paid. However, as someone with an online business in Canada, you should know that there are ways in which you can resort to saving taxes as well.
Keep reading.
Separate your personal and businesses expenses
The CRA will audit your records and eventually dig deeper if they find pieces of evidence of any personal expense being mixed up with your business expenses. All personal expenses will be taken out and you would be taxed based on the actual profit you make from your business.
Tax software is your friend
Let’s be real. Tax planning software is a must for small business owners. Using tax software such as Turbo Tax or similar will make it easier to prepare and file your online taxes. Forget about paper. The CRA reported that less than 1% of online taxes filed contain errors. That number skyrockets to 21% when you file using paper returns. If that sounds like too much work, hire a tax professional and maybe an online accountant. Online accounting/ Online bookkeeping has made this very easy.
Stop ignoring your automatic expenses
You may not realize it, but you can deduct your car expenses if it is used for business. I just asked a client to leave his employer and start his own business. For the first two months after he went out on his own, he tracked his mileage, and guess what it did for his business? The number was just over 90%. If this rate continues throughout the year, he can deduct thousands of dollars for using his car for business.
Set up a home office and deduct its expense
Too many people who work from home are afraid to take the home office deduction. If you work from home, at least see if you qualify for this tax credit. You might be surprised by how much money you can save.
Hire family members
Hiring a family member is one of the best ways small businesses can reduce taxes. The IRS allows for a variety of options to do this. You can also employ your children to shelter your income from taxes. Income paid to your children has a lower marginal rate; sometimes the tax is removed entirely. If your business is a sole proprietorship, your child’s salary is exempt from Social Security and Medicare taxes. Just make sure the earnings are legitimate for commercial purposes. Meanwhile, hiring a spouse would also reduce taxes because the spouse’s earnings will become part of the expense subheading.
Accounting business losses
Tracking business losses is a great way to reduce the amount of tax you owe each year. Business losses can be deducted from income, in many cases reducing your company’s total taxable income by thousands of dollars. This allows business owners to save much more money than simply deducting items that may be considered personal, such as home loan interest or charitable donations.
Frequently asked questions
What is e-commerce?
Many companies operate over the Internet. Such a business is also called e-commerce. This page contains information about e-commerce and reporting requirements for doing business on the Internet. There is also information on the cost of capital contributions for computer software and website development costs.
What internet activities need to be reported?
All existing online taxes laws that apply to businesses also apply to Internet businesses. If you earn money from one or more websites or sites, you may need to report the websites and the income they earn. Depending on your business structure, you have different reporting requirements.
How to report income if my business earns through online web pages?
If your corporation derives income from one or more websites or websites, you are required to submit Schedule 88, Internet business, with your corporation tax return (T2) for tax years in which the expiry date is after 31 December 2014. If your partnership earns income from one or more websites or websites, you do not currently have to separately report Internet income information. If you earn money from one or more websites or websites, please complete the Internet Business section of the following forms that apply to you, along with your General Income Tax and Benefit Package (T1):
- Form T2125, Statement of Business or Professional Activity
- Form T2121, Statement of Fishing Activities
- Form T2042, Agricultural Activity Statement
What if I only have approximated income to report and not the actual figures?
Report the gross income from all your online stores as a percentage of your total gross income. If the exact percentage cannot be determined, provide a reasonable estimate. See the headings below for information on how to report this depending on your business structure.
What kind of websites and/ or web pages need to be reported?
List your website or sites that generate income. If you have more than five websites or sites, identify the top five income generators. If they do not generate income, such as directory websites and information-only websites, they do not need to be reported. Examples of websites or sites you should include are:
- websites and websites that allow you to complete and submit an order form, checkout from a shopping cart, or similar transactions
- websites of online marketplaces where your goods or services are sold
- Websites and websites hosted outside of Canada
- advertising, programs, or traffic to your site that generates revenue
Conclusion
An online accountant is much more important than someone who prepares your financial statements for you. You should probably hire the right accountant to ensure that the tips provided become readily applicable and provide tax-saving benefits for your online business in Canada. An online accountant would pinpoint cash flow issues, and income leaks, track sales, and expenses, and above all, knows ins and outs of taxes that help in leveraging most, if not all, tax saving avenues, helping you save considerable taxes for your online business. Take help of Online accounting/ Online bookkeeping to file