Unincorporated Small Business and Self Employed owners are fortunate to be in an age where preparing tax returns have been significantly simplified. Not only are calculations automated, but contemporary tax software provide interfaces which make input of data fairly straightforward. Tax software also help taxpayers to optimize their deductions, so preparing your own taxes has never been easier. Of course tax software is still only a tool and is not a replacement for tax expertise. Business owners should be cautioned that, when in doubt, it is always best to consult with an an accountant.
Ufile is available online or can also be downloaded to your computer. The online Software costs $15 for individuals & $24.95 for an additional spouse, with no additional charge for dependents. The cost for purchasing the Windows version (sadly, they do not make it for Mac) is $30 and can be used to prepare up to 8 returns (you can be the tax preparer for extended family and/or friends.) Either version allows you all the functionality of a personal tax software e.g. it allows you to prepare your self employed/sole proprietor and/or partnership statements of income. Ufile also allows your to import data fromTurboTax, if you have used this program in the past.
The interface is quite straightforward. You are taken through an interview where you enter all your personal data and check the types of income and deductions that apply to you. Once completed it creates a series of pages that need to be filled out with relevant information. If you have checked the self employed business or partnership income, the software will create a “self employment income” section with several subsections:
The first section requires input of information relating to your business. Note that if you are not registered, the name of the business is your given name and the date is the current calendar year. This, along with the industry code of your business, is required information and you will not be able to proceed without entering it. The industry code can be found by selecting the the question mark and finding the industry that most closely matches your business. All other fields on this page are optional.
The second page requires the input of your income and expenses. This is where your profit and loss statements from your accounting software (or excel spreadsheets) will be needed. It is best to be as specific as possible. Keep in mind that home office expenses, automobile/vehicle and depreciation of fixed assets will are entered on a separate page.
The Home Office page provides you with a list of expenses that are commonly deductible, however if there are other expenses that relate to your home as a whole or specifically to your home office, then you can enter them in the “other” section. This can include, but is not limited to, rent and condo fees. You should also enter the percentage that is used for personal purposes, which can be calculated by taking the square footage of your home office and dividing it by the square footage of your home to arrive at the home office percentage and deducting it from 1.
The CCA section represents depreciation on larger purchases like computer equipment, furniture etc. You are not allowed to deduct these costs in their entirety since they have useful lives that exceed one year. The Canada Revenue Agency publishes CCA rates which are multiplied by the total cost of the fixed asset to arrive at the allowable expense. Ufile gives you a list of all the CCA categories and provides descriptions for the most common ones. The catch all class is often equipment and furniture. Disposition of assets can be a little more complicated and it may be prudent to consult with an accountant prior to entering information.
Keep in mind that Home Office Expenses and CCA are only deductible to the extent that you have income. Other business related expenses that exceed your income are deductible against other sources of income.
Once you have entered your business and other tax information, you can click on the results tab. This will let you know your taxes payable and give you information on errors and omissions. This is extremely useful as it allows you to exactly identify your errors and go back and correct them.
Once completed, you can efile your return, which, for small business owners and self employed, is due on June 15th. To reduce interest costs, estimated taxes owing should be paid by April 30th. It is important to note that although no documentation is required at the time of e-filing, the CRA requires that you maintain your documentation as they can ask for it at any time. This includes accounting records, bills, receipts, invoices, cheques, deposits, bank statements etc.
Using personal tax software is a good way for sole proprietors and self employed workers to save costs on their tax filing and give them greater insight into their tax situation. If you are not comfortable with some sections or if you feel like you are not maximizing your deductions, it is usually better to at least consult with an accountant to prevent errors and ensure that your taxes payable are minimized.
- Corporate Tax Facts for Small Business
- Tax Tips for the Self Employed
- Tax Facts for Small Business Owners
- Deductible Home Office Expenses
Ronika Khanna is Montreal accountant who helps small businesses with their accounting, tax and financial goals. To receive regular updates of articles pertaining to small business, accounting, tax and other topics of interest to business owners you can sign up here. You can also follow her on Facebook or Twitter.