Small Business and Self-Employed Taxes Overview
Tax month can be a time of tension and stress for most tax payers. For those Canadians who are self-employed or managing their own business, this can be a dreadful time. Facing your obligations in terms of the sources of your income, business expenses, GST/HST claims. Furthermore, it is possible that you might be dealing with a tax bill to the Canada Revenue Agency or CRA if you owe money on your return for 2019.
On the other hand for those self employed, there are several expenses on your business that you can deduct to compensate your income, which allows you to save money. So, if you own a small business or an individual entrepreneur, this guide will keep you aware of the things that you need to know for the 2020 tax time.
What is Business Income?
Business income refers to any income that you’ve earned out of your business activity. This includes the money that you acquire from self-employment, freelance work, and whatever trade you have or services or products that you offer. You might be necessitate to register and charge the GST/HST on your business income regardless of the services and good that you have provided. Hence, the sales tax that you’ve accumulated on your return will be remitted to the Canada Revenue Agency or CRA.
Deadlines for Self-Employed
If you are one of the self employed Canadians, you have until the 15th of June to file for your tax return. That is approximately longer than six weeks for you to get your documents or the necessary paperwork ready as an individual filers. However, if you owe return last year, you will have until midnight of the 30th of April to settle it.
Deduction on Expenses
In general, you can deduct all the expenses that you have acquired to manage your business. These expenses may include as follows:
- Office supplies and equipment
- Marketing expenses
- Cost for advertising and promotions
Besides, if your managing a home-based business , it can be tricky sometimes when you’re trying to categorized personal expenses from business costs. if you’re facing this kind of situation, seeking the help of an accountant or using an accounting software for your business can patch things for you. Also you can refer to the CRA page for further details and information
If you’re renting for an office space, you can deduct the whole business expense costs. In contrast if you’re office is taken as a part of your home, you have to determine the capacity of space that it acquires from your home and deduct the due expenses. An easy means is to distinguish how much square footage is your office and divide it by the square footage of your entire home space.
For instance, if your office is 300 square feet and you home space is about 3000 square feet, your office space then takes up about 10% of your home space. In this case, the CRA may allow you to deduct 10% of your interest in mortgage, home insurance, security monitoring charges and other costs that is related on your income tax return for self-employment.
Capital Cost Allowance
If you obtain a property that depreciates like pieces of equipment, or any furniture that is utilized to run your own business, it is also deductible, but over the duration of the item. When the CRA termed these properties as obsolete over the period, then you can deduct their costs over a duration of several years. This certain deduction is called capital costs allowance or CCA. Also, you should know that in terms of capital costs allowance, you cannot deduct the entire costs of your property that depreciate when calculating your professional income or the net of your business for the year you’ve acquired such depreciating property.
Compile Your Receipts
The Canada Revenue Agency has the right to ask proof of your business expense up until seven years after it has been acquired. The CRA stated that your claims must be supported with your sales invoice or an agreed purchase agreement, a receipt, or a voucher supporting your expenditure when claiming for business expenses.
Moreover, the CRA also states that paying cash for any business expenses, you must obtain receipts and keep them with your other vouchers. It has to have the name of the voucher and the date of purchase. Also, upon filing a return, you should not be sending your receipts or vouchers.
The following are some of the common and uncommon expenses incurred on your business that you may deduct:
- Start-up costs that may include charges and interest on the money you’ve borrowed to venture your business.
- Business operations
- Cost of delivery and shipping fees
- Legal fees, accounting services, and other professional fees incurred
- Telephone, Internet or Cable
- Expenses on utilities
- Travel and entertainment expenses
- Cost of cheques
- Bank fees
- Annual dues for advertising and trade institutions
- Parking costs/fees
- Private health plan services premiums
- Interest on your vehicle payments
- Cleaning supplies for your office
- Deduction for your bad debts
- Cost in terms of recovering balances that are owed to you
Furthermore, as an owner of a small business, tax months doesn’t have to be daunting. In fact, there are several accessible online tools and professional that is ever prepared to extend their help. Besides, in a small business, seeking a professional is favorable as it is tax-deductible when filing for a tax return the following tax season.
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