Best Practices & Tax Tips for the Self-Employed in Canada
Do you own your own business and want to achieve your lowest possible tax bill? Here are some best practice tax tips for the self-employed.
Self-employed workers and small business owners are required to be fiscally responsible all year long. Along with managing income, expenses, and cash flow, the ever lingering “tax time” is always on the mind of someone whose taxes are not automatically deducted by an employer. There are many things you can do throughout the year to help lower your tax bill, here’s a list of items to keep in mind to maximize savings.
Identify and use tax deductions
There are several types of expenses that self-employed persons can claim against their taxes to lower their amount owing. Each situation is unique, but this list is some of the most common items that are deducted by individuals and small businesses.
- Home office expenses
- Vehicle and fuel expenses (for work related travel)
- Fees for professional services such as legal or accounting
- Maintenance and upkeep of company-related property
- Insurance premiums, and interest accrued on business loans
For a complete list of eligible deductions, visit the CRA’s website. It is also important to remember that you should keep receipts and records for any deductions you claim for a minimum of six years in case of an audit.
Incorporate your business
As a corporation, income is taxed at approximately 9% after eligible small business deductions. In comparison, personal income taxation rates start at 15%, and can be as high as 33% depending on income levels.
Along with significantly reduced rates, an incorporated business also assumes any debt obligations, rather than the liability being on the individual. This restructuring of obligations can be very beneficial in case the unexpected occurs, and essentially operates as insurance for the owner so that they are not personally responsible for debt.
Organize, track, and review expenses
Many self-employed persons miss out on eligible deductions due to being unorganized. An entire year can be filled with ups and downs, and quite often things that happened 10 months ago won’t be at the top of the mind when filing taxes.
Keeping adequate records of expenses allows easy reference when totalling annual numbers, and also makes it easy to look back on a fiscal year if eligible deductions are changed by the CRA. Items such as fuel costs, medical expenses, and small items like office supplies are the expenses most commonly forgotten about, and can add up to a significant number over the course of a year.
Always file a return
This one seems simple, but it is all too common for self-employed individuals to neglect filing their return. Aside from incurring potential penalties, there are several items such as GST/HST rebates, provincial tax rebates, and other credits and benefits that a person would not be eligible for if they don’t file an annual return. Worse yet, late returns could be audited, compounding the above problems and creating a costly and time-consuming headache.
Looking for more self-employed tax tips from an experienced accounting team? Visit our blog for more articles, news and updates about small business accounting, tax planning, CRA audits and bookkeeping.
- Family Successions: What Bill C208 Means for Small Businesses in Canada - February 16, 2022
- Best Practices & Tax Tips for the Self-Employed in Canada - February 16, 2022
- How to Reduce Tax Liability When Planning a Family Succession for Your Business - February 15, 2022