Have you already completed your taxes for your small business?
Chances are that you just let out a big sigh, followed by “…no.” Well, don’t worry! You still have some time before you need to get your business and personal tax returns to the CRA. Of course, you might also be incredibly busy between now and then—after all, running a small business is one of the most stressful jobs you can have!
If you’re concerned about filing your small business taxes, here are some of the things you need to know, from the professionals here at The Number Works!
What Actually Is a Small Business?
A small business can be just about anything that brings you income. If you’re self-employed, then you have a small business, even if it isn’t incorporated.
That said, the structure of your small business will play a significant role in how you file your taxes.
If you’re self-employed, then everything can be filled in the T2125, Statement of Business Activities form. This form informs the CRA of your income and deductions.
If, on the other hand, you’ve incorporated your business, you’ll need to file a separate return. This is a Corporate Tax Return, or a T2, for the business. All of your business’ income and deductions end up in this return.
You must know the forms that you need to fill out. The last thing you want is the CRA knocking at your door because you didn’t fill out the right ones. If you’ve filled out your small business’ taxes in the previous few years, you can likely use them as a template. If this is your first time filing your taxes as a small business, then you might need a little bit of help (which we would be thrilled to provide).
The Importance of Keeping Records
The main reason why so many people have a difficult time during tax season (when it comes to both their business and personal returns) is because of poor record-keeping.
When you are running a small business, you can’t just keep shoving all of your receipts and invoices into a shoebox sitting under your desk (you shouldn’t be doing this with your personal taxes either, FYI). Instead, it would be best if you made sure that your books are being kept up-to-date continuously, with detailed financial information.
Maintaining the books is one of the reasons why many small business owners hire a bookkeeper year-round. We can ensure that everything will be exactly where it should be. A professional bookkeeper makes tax time a snap, as you don’t need to dig through dozens (or even hundreds) of documents to find the ones that you need.
The Structure of a Self-Employed Tax Return
There are three parts to a self-employed tax return: Identification, Business Income, and Business Expenses.
Identification is simply the details about your business, including its name, address, industry code, information on partners or co-owners, and the fiscal period you’re covering (usually the fiscal year). You likely have all of this information readily on hand, so this section is typically a piece of cake to fill out.
The business income is precisely that—this section is where you are putting the income you’ve gotten from your small business. It’s important to remember that this is your gross income before you calculate your experiences. You will be putting your expenses in the next section.
The business expenses section is the place you list all of the expenses that you built up while running your business. Here, you can include things like office supplies, marketing, vehicle expenses, and meals (50%). If you have no experience filling out your small business’ taxes, this section can be tricky because you might not know which deductions you qualify for—that’s where we come in. At The Number Works, we know all of the deductions that you’re eligible for. In fact, the money you save on your dedications can often cover the cost of hiring us to do your taxes!
Common Mistakes or Assumptions
New small business owners often make mistakes or assumptions about their taxes. Here are some things to keep in mind:
First, it doesn’t matter how much money your business makes, you still need to file a tax return. Some people think that if their business doesn’t bring in any income, then they don’t have to do their taxes. This is most definitely not the case! After all, many businesses fail to show a profit for the first few years in operation. If that is your situation, then you can often deduct the loss to your other forms of income. So, don’t make this mistake!
Another belief is that if you make less than $5,000 a year, you don’t have to file your income taxes. Again, this is a misconception. You need to consider Canada Pension Plan contributions and other factors. It doesn’t matter how much money you make, you still need to file.
Finally, it doesn’t matter if you are a student or not—you need to file a tax return if you are self-employed or own a small business. This can be tricky as students are often overworked and have little time. Many rely on their parents to file their returns, but this can be a big mistake. It’s best to get involved with your taxes at a younger age, so you don’t feel overwhelmed when it falls to you to complete them in the future. We can help you learn what you need to make sure you’re better prepared to handle your taxes once you graduate!
The reality is that nobody likes to do their taxes, either small business or personal. It’s stressful, takes up a ton of time, and one mistake can result in months of headaches. At The Number Works, we do whatever we can to help small business owners take care of their taxes so they can instead focus on the job of building their business. Contact us today to get some help doing your taxes. But do it soon, as filing deadlines are coming up fast!