093 | Taxes for Sole Proprietors
In this final blog post of our "Hot Topic of the Month: Taxes" series, we are going to offer some information that may be helpful for Sole Proprietors.
First off, as a sole proprietor of a small business, you are the person wearing all the hats. There aren't others to delegate to and your #Soleproprietorship is owned by just you. It’s cheaper and easier to start a sole proprietorship than a corporation, but one downside is that you also assume all the risks, which extends to your assets. That includes filing (and paying) your taxes on time and making sure you have the right tools, knowledge, and help when needed. Most small business owners and sole proprietors must file a tax return by June 15, 2023.
Here are five basic tax tips to help:
1. Set Money Aside Throughout the Year
It may seem obvious, but if you are new to small business ownership, or if you operate a sole proprietorship, you may be caught by surprise at how much you owe at the end of the year. Especially if you are used to having taxes and CPP payments deducted from a paycheque.
Being a sole proprietor means you are responsible for figuring out your taxes and other payments owed. If you wait until tax time and don’t set money aside over the year, you may find yourself owing a large sum of money you cannot easily pay.
A budget will be your best friend at this stage to determine your net profit and how much to set aside. It’s helpful to also budget for #RRSP contributions, as these can offset the taxes you will owe.
And finally, you are also required to register for a GST/HST number once your business makes $30,000 or more in 12 months, so you need to set aside those payments too.
2. Know What You Can Deduct
One of the greatest benefits of working as self-employed, is the number of things you can deduct or “write off” – especially if you work out of your home. “Business use of home” expenses mean you can claim a portion of:
Your mortgage or rent
Home repairs
Home utilities like heat, water, etc.
Phone, internet
Your home insurance and taxes
Other things you can claim as a sole proprietor include:
Motor vehicle expenses (keep a logbook for business mileage)
Business parking, transit, travel, hotel rooms
Food and entertainment (if business-related)
Product inventory, office supplies, and other tools
Marketing, professional memberships, websites
Business advisories such as accountants, lawyers, courses, coaches
Office space rental and utilities
Business liability insurance
3. Keep Track of Payments and Business Expenses
You are in for a long night if you wait until #tax time to start looking through that shoebox full of receipts. As much as we love receipts, we don't recommend this method! You will miss a lot of deductions if you choose this route.
We recommend a separate bank account and credit card for your business. Being diligent about using these only for business expenses and deposits will help keep things straight when sorting them later. Doing taxes will be much easier, and with far less surprises.
We are #Quickbooks Pro Advisors and can create a set of financials for you to keep everything organized.
4. Know When and Where to Get Help
If you need direction on which specific forms you’ll need to submit for your business, the CRA has a list of these here to help you out.
It can be challenging to run a business by yourself, so don’t be afraid to call us if you find yourself owing money, or needing advice. Doing so will often pay for itself if the direction can save you money. Plus, it is a business expense, so you can also include it in your deductions.
5. Don’t Delay If You Owe Money
If you end up owing money, do not delay with payment. If you miss the payment deadlines, you will accrue interest on any balance owing immediately.
If you can't pay in a lump sum, pay what you can and then call the #CRA. Let them know when you will be making payments, what the amounts will be, and that you are pro-active in settling your account. It will greatly benefit you in the future to fully disclose and be transparent.
And as always, we are here to help! Contact Us if we can be of assistance.
#bigrose #bookkeeping #taxes #T1
