One of the most important things that new business owners need to learn is how to file the proper taxes for their business. When you were employed in a regular office, all you probably had to worry about was your income tax. But now that you own a business, you will have to learn a little bit more about the tax system.
The good news about being a home business owner is that you can qualify for certain tax exemptions or deductions. The only major requirements are that you should be running the business from home and that you have a clearly defined office area within your home. These tax breaks are specifically designed to help home businesses prosper despite limited resources. To learn more about them, inquire with your local government.
In every kind of business, having an organized system for keeping records is absolutely essential. Every single document that has something to do with your business should be properly filed. And yes, that includes the seemingly insignificant receipts for office supplies or the gas you used for business travel.
Since you are running your business from home, and you have a legitimate office area inside your house, you can enjoy some tax deductions on your home payments and utility bills. For instance, if you are using about a fifth of the total floor area of your home for your business, you can claim a fifth of your total utility expenses. Even if you are just renting your space, you can still claim a portion of your rent.
Being self-employed means you have to take care of paying your own medical and Canada Pension Plan taxes, which would typically be the responsibility of your company if you were employed in a regular office. You are responsible for both portions of CPP, which is 9.9% of your net income up to a maximum for the tax year. There may also be other taxes you need to pay, depending on regulations.
For most new business owners, dealing with all these taxes can be very confusing, especially if they don’t have any prior experience in the matter. In you find this tax business confusing, you can make the job a lot easier by using a tax software that will do all the computations for you. Many of these programs are available for free and are very easy to learn.
Another option is to hire a bookkeeper and/or an accountant. You’ll have to pay him for his services, of course, but oftentimes, the money you pay a bookkeeper or an accountant is more than worth the savings he can help you realize. You may want to hire both, the bookkeeper to perform the daily entering and reconciling, and the accountant for taxes. With an accountant’s knowledge and expertise, he can reduce your total tax by a significant percentage — much more than you can ever get by just relying on a tax software.
One of the common mistakes new business owners make is undermine the importance of paying their taxes before the deadline. Even a single late payment will not look good on your record so make sure you keep track of tax deadlines at all times. If you find come tax time that you don’t have the funds to pay, still file. That avoids a late filing penalty, which can be substantial if you miss year after year.
Ways to Make the Most of your Pandemic Savings
Filed Your Tax Return? – What to do if you Forgot Something
The Personal Tax Filing Deadline is April 30th – Some Last Minute Reminders
Differences Between a Tax Credit and a Tax Deduction in Canada?
Ways to get a Bigger Tax Refund
Who is Required by the CRA to File a Tax Return in Canada?
Do we Need to File our Taxes as a Couple if we are Common-Law?
Do I Have to Report Foreign Income on my Canadian Tax Return?