Self-employed people such as sole proprietors have until June 15th to file income taxes. However, note that the payment due date for any balances owing on your tax return was April 30th. The following are a few things self-employed taxpayers should be aware of.
Remember you are required to pay estimated taxes on a quarterly basis based on your prior year tax assessment. CRA will charge you instalment interest if you fail to make these payments. Ask your accountant to estimate these payments when he finalizes your tax return.
Home office expenses are valid expenses when your workspace is your principal place of business (used for business over 50% of the time). If you qualify for home office expenses, you can deduct a portion of expenses incurred on your home. For example, if your office takes up 15% of the total square footage of your home. You can deduct 15% of your mortgage interest, rent, property taxes, heat, hydro, water, home insurance and maintenance costs. Don’t miss these deductions and be sure to ask your accountant about them.
Keep your tax receipts for 7 years. You are required by law to keep records of all your business transactions to support your income and expenses. Be sure to either scan these receipts onto the computer or keep them organized with your tax return in the event CRA asks for them.
Pay salary to family members. Self-employed taxpayers can pay family members a reasonable salary to save taxes. The strategy is effective when you are earning more than your family members. Since those earning less will be a in a lower tax bracket. Record of hourly wages and time should be kept in a log to support that there is a bonafide relationship between yourself and your family members.
Do you lease a vehicle? You can deduct a percentage of vehicle operating costs with respect to total KM’s driven for businesses purposes / total KM’s driven in the year. Remember to keep a daily log which includes the date of trip, location of trip, KM’s driven during trip, and the purpose of the trip. This will help refute any challenges made by the CRA.
If you decide to have an accountant prepare your taxes to save time and avoid potential problems, you can write this off as a deductible expense.
Incorporate to save taxes! By incorporating your company, corporations eligible for the small business deduction are subject to a very low federal tax rate of 10.5%. On the other hand, the business profits of unincorporated businesses are included in the owner’s taxable income, which may be taxed at a marginal tax rate up to a maximum of 47.7%.
Do you need help filing your tax return? Contact Argento CPA today!