The self-employed lifestyle holds great promise when you first start out self-employed, but you quickly find yourself doing things you never dreamed possible. You will have to take on the role of salesman, market researcher, accountant, lawyer, and social media expert without getting paid for any of it. Talk to a tax return accountant for t2 tax return filing.
Below are some tips and strategies to help you through the process:
A separate bank account
Having a separate bank account and credit card for your business can be invaluable when trying to figure out your finances, especially if you only do it once a year. It’s also a great way to see your available funds, and a quick way to calculate income and expenses without an accounting system. If bank fees are an issue, you don’t need to set up specific trading accounts; just make sure that the account and credit card are only used for deposits and business expenses. This helps when filing a corporate income tax return.
Keeping all invoices
For service-based companies, setting up a process for smooth, regular billing of customers will improve cash flow, reduce bad debts, and help reduce customer inquiries when they receive an invoice 6 months after executing a service. There are many billing software available in the cloud, many of which are free. Alternatively, the invoice template can be set up in Word or Google Docs. If you are registered, you must include your GST and QST numbers on your invoice
Deductible business expenses
The CRA provides a list of deductible expenses with some details about each. Basically, most expenses incurred to generate business income are considered deductible unless specifically permitted. For example, shopping for clothing is generally prohibited. Business expenses incurred in purchasing capital equipment (such as a building) are not deductible as expenses and are instead added to the capital cost of the property. Expenses paid in advance, such as a security deposit, are deductible until used. There are also a number of special rules regarding food and entertainment expenses.
Deducting automobile costs
If you use your vehicle for customer meetings or sales calls, there is a deductible. One caveat is that driving from your home to your office is not deductible (this doesn’t apply if your office is in your home). If you rent your own vehicle, you can deduct up to $800 of the monthly rental cost, which must then be prorated based on business and personal use. You can also deduct the same percentage of the license, registration, fuel, and maintenance costs. It is important to keep a car record that includes all business trips. This helps when filing a corporate income tax return.
Talk to a tax return accountant for t2 tax return filing.
Deducting traveling costs
Expenses such as air and train tickets, hotel rooms, and other business travel expenses are deductible. This is one of the areas most scrutinized by the CRA and RQ and as such, it is very important that you document the business reason for travel e.g. meeting clients or suppliers, and deducting any part of costs that are of a personal nature. For example, the cost of tickets for a spouse or children should be deducted from total travel expenses. When adding a few vacation days to a business trip, the total travel costs should be proportionate.
For customers who fail to pay and it is assessed that there is a significant probability of not receiving payment, any amounts due may be written off as bad debt, which represents an expense in the profit and loss account. Any future collections can then be added at the time of renewal.
Tax Software/T2125 Declaration of Company Activity
Unincorporated self-employed persons include their business income in Schedule T2125 of their personal tax return. Tax software has made filing a tax return quite easy, especially if your business is simple. Most of them will walk you through an interview. The T2125 Business Declaration requires you to enter a NAICS code (the code that most closely matches your business). You should then enter your total income and expenses by category. If a category isn’t listed, you can create one. The trickiest parts of the return are
1) Car Expenses, where you have to enter the details of the vehicle you bought or leased, then list the individual expenses including gas, repairs, registration, etc., and
2) Capital Cost Allowance (CCA), where you select the CCA class, which reflects any high-value purchases that are capitalized and subsequently written off.
Deduction of Home Office Costs
If you have the luxury of working from home and this is your only office, you can deduct your office-related expenses plus a percentage of your overall home-related expenses, such as mortgage interest or rent, insurance, property taxes, alarm, condominium taxes, and services. It is important to keep all invoices and a record of the calculation in case you are asked later. Repairs and maintenance are deductible if they concern your home as a whole (at a certain percentage) or your office specifically (100%), but costs relating to specific areas of your home are not tax deductible, for example, if you have remodeled your kitchen it is not deductible. Here is a list of ideas to help you organize your home office.
Deduction of Mobile Phones and Internet Costs
Most of us use our cell phones and the internet for work and personal use. These expenses are deductible to the extent you can reasonably show that they relate to your business. It’s a good idea to calculate your personal and business usage and use this percentage when calculating your business expense to be deducted.
If you are self-employed, you might have a hassle filing your corporate income tax return on your own, given the fact that you also have to put considerable time into working as well. Talk to a tax return accountant for t2 tax return filing.