Tax Tips for Self-Employed Small Business Owners

Being self-employed, and owning your own small business entails as much responsibility as it does freedom. This is particularly true at tax time. Although you no longer have a type-A boss looking over your shoulder, telling you what you should and shouldn’t do, you also don’t have a buffer between you and the Canada Revenue Agency. No one stands in the wings ready to tell you how much you should be paying, when it needs to be paid and what you can deduct.

Here are five tax tips to help ensure you don’t pay more tax than you have to.

Know Your Deadlines

Your income tax return isn’t due until June 15 (unless the 15th falls on a weekend or statutory holiday – as in 2019 when the 15th falls on a Saturday – the deadline to file becomes June 17) if you’re self-employed, but if you owe money, payment is due by April 30. You should have a good handle on your tax situation before then so you can forward payment before submitting your return. You can sign up for My Account or My Business Account online with the CRA. This tells you when deadlines are each year. Add the dates to your personal calendar and set a reminder that pops up at least a month in advance, or sign up and have the CRA send you notifications.

Don’t Miss Deductions

Examine the costs you incur in running your business and make sure you have the receipts so you can deduct them appropriately. Some of the most common deductions for small businesses include goods you purchase for resale, equipment rentals, office supplies, bank fees and insurance. If you took clients to a hockey game, a portion of those tickets – and dinner and drinks that may have followed – are deductible as well, if they were directly related to earning income.

Know What You Can’t Deduct

Understanding what you can and can’t claim as business expenses is critical. Entertainment expenses provide a classic example of potentially claiming too much. You can only claim up to 50% of the cost of that hockey game, not the whole thing, and your claimed deduction must be 50% of the lesser of “the amount actually paid or payable in respect of these items” or the “amount that would be reasonable in the circumstances to pay for them.”

Split Some Income

Depending on your business structure and the work you do, it may be advantageous to hire a family member with a lower income than yours to do some of the work. For example, paying a stay-at-home spouse to handle record keeping could entitle him or her to a wage that reduces your overall family tax bill when it’s taxed at their rate instead of yours. As with any expense, the work has to be legitimate and the wages must be reasonable. (Paying a child $200 an hour to deliver fliers could get you negative attention from the CRA.)

Plan Ahead

As your business grows, it’s vital to plan ahead for future tax considerations. GST/HST is a common problem for emerging small businesses. If your sales are below the $30,000 threshold in the past four consecutive quarters and you’re considered a small supplier, you may not have to charge your customers GST/HST just yet. But as your sales grow, you should register and start charging sooner rather than later. If you find at the end of any quarter that your sales reached $31,000 and you haven’t yet started charging GST/HST, you’ll have to register and pay at least the 5% GST on these sales, in addition to what you owe provincially. The net result would leave you owing $1,550 out of pocket.

With these tips, and a tax software that automatically searches through all the potential tax credits and deductions, filing your taxes as a small business can be easy. TurboTax Self-Employed was designed to help small business owners and the self-employed at every step of the way with tax expertise.

Author Bio

A published author and professional speaker, David Weedmark has advised businesses and governments on technology, media and marketing for more than 20 years. He has taught computer science at Algonquin College, has started three successful businesses, and has written hundreds of articles for newspapers and magazines throughout Canada and the United States.