Being a small business owner comes with challenges, not the least of which is paying taxes. While most Canadian taxpayers have relatively simple tax returns that can be easily completed using the software, small business owners have the added burden of reporting details relating to their business. This may seem difficult, but understanding what needs to be done and when can go a long way in reducing stress and ensuring your tax filing process is smooth and straightforward.
One type of income on which you pay income taxes is what Revenue Canada (CRA) refers to as “self-employment income,” which is essentially the same as small business income. File corporation tax with the help of a renowned accounting firm or an income tax accountant near me.
Find Out If You Need To Report Tax Income for Small Business
If you’re making money and don’t have an employer to provide you with a T4, you usually need to report it as business income in a separate tax filing schedule. This applies to anyone who sells goods or services, including consultants, self-employed workers, and/or contractors. There are also other ways Canadians earn an income that may seem a little obscure, but usually need to be listed. Some of these include:
- Selling products on Instagram or eBay
- Have a blog or website that earns advertising revenue
- Be a part-time rideshare (like Uber) or a delivery driver
- Writers receiving any type of royalty or publishing income
Decide Whether to Outsource Your Accounting Or Do It Yourself
Preparing your own unregistered tax return can be quite simple, especially when you use tax preparation software to guide you through the process. However, if you feel a little overwhelmed at the thought of doing it yourself, or if your situation is a little complicated, it might make more sense to hire an accountant to do the job. If you plan to outsource, you should find an accountant as soon as possible, as they tend to be very busy at this time of year. When talking to a prospective accountant, you should make sure they have good communication and are responsive. It may be worth paying a little more for a suitable service provider, especially when it comes to your finances.
File corporation tax with the help of a renowned accounting firm or an income tax accountant near me.
Determine the Kinds of Expenses You May Deduct
Every entrepreneur is entitled to a deduction for expenses related to their business, which are detailed by category, as indicated on form T2125. Some of the more popular expenses include:
- Direct costs such as the cost of materials to make your products, shipping, customs duties, and amounts paid to subcontractors.
- Advertising costs, which also include costs related to websites, networking events, and online advertising.
- Meals and entertainment involving customers or business partners.
- Bank charges for your trading accounts.
- Rates and subscriptions for the monthly services you use related to your business.
- Office fee required to run your office.
- Home office charges may be claimed if you work exclusively from home (rather than another office) and are based on the home office percentage of your total home.
- Automotive expenses including lease payments, petrol, insurance, repairs, etc. by the percentage of miles traveled year-over-year.
- Capital expenditures refer to increased purchases of furniture or equipment such as computers, printers, etc. which cannot be spent in one year but must be amortized over time.
Be Sure To Keep All Relevant Documentation
While you don’t need to submit any documents when you file your tax return, it is possible that the CRA will ask you for documents at a later time. The types of documents you should make sure you keep relevant to your business include:
- Receipts and accounts related to your expenses.
- Invoices and customer payment records.
- Bank and credit card statements.
- Legal documents, contracts, etc.
- Valuation notice and other government documents.
- A spreadsheet with your data or reports from accounting software, including a profit and loss statement.
I recommend scanning the documents into an accounting folder on your computer as it makes them easier to find if you need them in the future and is also good for your own use.
Understand Your Tax Obligations
If your business is registered for sales tax, it is essential that you understand your reporting and levy obligations. Reporting can be annual, quarterly, or monthly. You should know how often you are required to report and ensure that forms are completed and submitted on time. Failure to do so may result in significant penalties and interest. For annual filers, tax returns must be filed at the same time as the tax return, which is June 15th. Sales tax payments are due by May 2 or the CRA will begin charging interest on the amounts owed. Similar to income tax, if you can’t file on time, you would have to pay an estimated amount to reduce the amount of interest you’ll have to pay.
GST/HST declarations and payments can be made directly through the CRA My Business Account. Alternatively, if you have a business bank account, you usually have access to a special tax return service where you can file and pay at the same time.
Find Out If You Need To Pay In Installments
If your 2021 and 2020 (or 2019) taxes owed exceed $3,000, the CRA requires you to make your 2022 tax payments. Depending on the amount of taxes you owe, they could be quarterly or even monthly. If you are required to make refunds, the CRA will inform you by post or by sending it to your “personal account”. Your tax software will also calculate the installments for you. Failure to pay the installments will result in the accrual of interest beyond the due date.
Register for My CRA Account and My CRA Business Account
All Canadian taxpayers have access to an online portal called “My Account” where they can see information related to their taxes, including assessment notices, balances owed, RRSP and TFSA contribution clearance, and a variety of other types of information.
Small business owners can also log into CRA ‘my business account’ to view their GST/HST and payroll information for those of you with employees. It also allows you to file returns online and submit documents if you ever get audited. Having a small business means additional administrative work, but it can all be managed with a thorough understanding of your responsibilities and good processes in place. This ensures you file your tax return on time, avoid paying unnecessary interest and/or penalties, and helps reduce the inevitable stress most of us feel when it comes to taxes.
File corporation tax with the help of a renowned accounting firm or an income tax accountant near me.