Self-employed? The 5 New Year’s Resolutions You Need to Keep
(So you don’t pay more tax than you have to)
Life is busy as a self-employed business owner or professional, we get it. But since nobody likes to miss opportunities for tax savings, here are the top 5 tax planning resolutions that can help reduce your tax bill.
1) One word, RECEIPTS.
Keep them. Receipts can be kept in digital format or a shoebox. In the case of a Canada Revenue Agency (CRA) audit or review, receipts will be required for all expenses. It might make sense to you that a $100 charge to Esso on your Visa statement is for fuel but CRA doesn’t know if it was for lotto tickets, food or cigarettes.
2) Write on every receipt.
Do a simple handwritten or digital note about what was the item for, what client and/or matter it relates to, and who was there. This is especially a good idea for claiming meals and entertainment or client gifts.
Remember: Be reasonable with what you claim. $30,000 in income usually doesn’t take $5,500 in meals and entertainment to generate. CRA knows this — and these kinds of inflated expenses will often trigger an audit.
3) Know your PST/GST obligations.
Depending on your industry, you may need to register for PST and/or GST. Make sure you know what (if anything) you need to invoice and pay for, as well as when to remit payments, when to file your return and how to request refunds.
Get info on PST from the Government of BC here: http://bit.ly/2BhvVTv
Find out about GST on the CRA website here: http://bit.ly/2ibnOUT
Still not sure? Ask your professional accountant for advice.
4) Schedule an oil change.
Yes really. If you have auto expenses you should keep a notebook and trip log in your car, but the easiest way to keep track of your total yearly mileage is by getting an oil change as close to Dec 31st as possible.
5) Get better at knowing what you can claim.
Make sure you aren’t missing any business expenses or misreporting them. For example, a new driveway is probably not a legitimate home office expense. Neither is the cable portion of your phone/internet/cable bill. However, you can usually claim a portion of your mortgage interest for a home office. Knowing what you’re entitled to can maximize your tax return and reduce your accounting fees.
Remember! If you’re self-employed, CRA wants your tax and your GST returns filed by June 15th but taxes are due April 30th.
Final note: Think about where you’re going in the new year.
Wondering if you should incorporate your business? There is no magic revenue number you have to reach to make that decision; it’s more a matter of your lifestyle, spending habits and goals. If you find you are making more then you need for monthly expenses, then consider incorporating.
Alex Young, CPA, CGA, is a partner with Loren Nancke. He is good with numbers and great with people … and has a legendary memory for Homer Simpson trivia. You can reach him at 604-904-3807 in Vancouver, British Columbia.