The Many Hats of Self Employment

Being self employed comes with many benefits.  You can sleep in, work in your pyjamas and go shopping in the middle of the day.  You no longer have to report to a boss who doesn't really understand what you do or deal with mindless workplace politics.  It all sounds wonderful, but unfortunately there are also many challenges.  Small business owners have to deal with uncertainty and risk.  They need to be disciplined and deal with the many demands that being self employed can impose upon us.  In the early stages of self employment, most of us have to take on the responsiblity of fulfilling the administrative functions that you find in a more established business. Some of the skills that you need to develop are:

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One Simple Step to Help Streamline your Self Employed Finances

If you are self employed or a small business owner,  you have probably discovered that keeping track of your accounting and finances can be time consuming and occasionally frustrating.  Unless you are an accountant, you’re never really sure if you are doing things correctly.  Consequently, you procrastinate, which really just makes things worse at year end or tax time.  To combat the problem it is important to have tools in place to facilitate the process and make it less painful, which could include  accounting software and/or a bookkeeper as well as a good organization system for your documents, whether it is electronic or paper format.  Another very simple measure that you can take is to have a separate bank account for your business.
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Tax Tips: Car Expenses and Benefits

Access to a car can be crucial to running a small business effectively.  Costs of ownership, however, can be onerous, especially in the early stages when your business is not hugely profitable.  Luckily, Revenue Canada allows individuals and corporations who use their cars to generate income to deduct the expenses and actually provides fairly comprehensive (i.e. complex) guidance to this end.  Below are some of the main provisions that impact small business owners:
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Are you Ready to Make the Transition to Self-Employment

There are many employees out there to whom the promise of self-employment aka freelancing aka independent consulting (all of whom are ultimately small business owners) seems extremely appealing  (particularly with a comfortable pair of pajamas).  You might crave the feeling of accomplishment that is no longer possible at your current place of employment; you might want greater flexibility or feel that you are not being compensated enough for your skills or perseverance.  Or you simply might want a change of pace.

While being self-employed can accomplish all of these goals, the transition itself is not as simple as it might seem nor is it the right decision for everybody.  There are many factors that need to be considered and many mental and financial preparations that should be made prior to taking this potentially life altering decision.

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Top 6 Signs Your Small Business Might Need a New Accountant

I met with a small business owner recently who had just purchased a retail business and was looking for a new accountant.  It seems that the current accountant was reviewing her books on a quarterly basis, preparing financial statements and doing the year-end tax returns – all typical accountant stuff.  The problem was that the accountant, while charging this small business a fairly significant amount of money, was not really adding any value to their business.   The bookkeeping, which was done by the previous business owner, was still being entered manually in ledgers (!). The quarterly accounting review consisted of checking the ledgers for mathematical accuracy and ensuring no major deductions had been missed without any discussion regarding the performance of the business.  Worst of all, the accountant was not responding to the client’s requests for a meeting.

There are many great accountants out there, however it is important to ensure that you are hiring someone who will compliment your business and add value.  Below are some of the qualities that should be considered either with respect to your accountant:

 

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Guidance on Deducting Home Office Expenses

One of the benefits of having a home based business (for freelancers, self employed contractors and small business owners) is that you can deduct the expenses relating to the space that you use to work.  This can result in a significant reduction in your tax bill for costs that you would incur regardless, giving you one more reason to love being your own boss.  

Criteria for Deductibility:

For home office expenses to be deductible, they have to meet the following criteria: 

  • It has to be your principal place of business i.e. you cannot deduct home office expenses if you have another office that relates to your business, elsewhere, even if you work 22 hours a day or you check your blackberry in bed.
  • The space designated as your home office is used to earn business income and/or you meet clients or customers on a regular basis.  You can deduct expenses relating to the workspace in your garage which is used for home improvement projects.
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8 Inexpensive Ways to Build a Client Base

Perhaps the most daunting aspect of starting a new small service based business is building a client base.  On the other hand, there is nothing quite so exciting as getting those first few clients. 

When trying to generate new business, it is important to cast a wide net as you never know where potential clients may be lurking.  There are many ways to build a client base, even with limited resources.  I have outlined some below:

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Employee vs. Self Employed: Criteria and Considerations

For the majority of income earners, employment status is pretty evident.  If you are going to the same place every day,  have an assigned cubicle with a computer and corporate stapler, and your boss tells you what you need to do, chances are that you are an employee.  Conversely if you have several clients, use your own laptop, and are worried about where your next  sale is going to come from, you are most likely, self employed.

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To Inc. or Not To Inc.

The decision to incorporate is one that most small businesses face at some point in their lifetime.  Incorporation, literally, represents the creation of a new person.  Whereas a sole proprietorship is an extension of one's self, a corporation takes on a life of it's own; it can give birth to subsidiary, marry via a merger and die with a dissolution.  It has to file it's own tax return, can be sued and has a set of rules that govern it's existence.  Below are some of the points to consider when deciding whether to incorporate:

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9 Year End Tax Planning Tips for Small Business Owners

As the end of the year draws nigh, it is time for business owners everywhere to start contemplating some end of year tax planning tips to not only ensure that they can maximize their tax deductions and reduce taxes payable, but to streamline the tax filing process in the New Year.  Even if you are incorporated and your year end date is not December 31st, it is a good time to take advantage of calendar year deadlines for personal tax planning purposes.

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7 Qualities of Highly Desirable Clients

“I want to create a rival to Twitter. So I want it exactly the same except where it says What’s Happening? I want it to say How are you feeling?”(From the very funny "Clients from Hell")

This pretty much sums up the type of client we don't want - ridiculous expectations, unimaginative and just plain clueless. Conversely, there are some clients that are a pleasure to deal with.  Ones that ask great questions, and make us feel happy to have chosen the entrepreneurial route.  The more important of these are listed below:

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Breaking Up with a (Likeable) Client

Many of us have clients who are annoying, cheap, stupid , high maintenance or some combination thereof.  As a new business owner, we are often stuck with these clients because we need them.  However, we look forward to the day when we will have the thriving business that we so deserve, and fantasize about the spectacular way in which are going to fire them (you can shove your business into your rear orifice etc.)  This is actually a productive fantasy as can help to channel and concentrate anger.  Of course, in the majority of cases, a firing should be conducted with slightly less vigour.

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Tax Return Checklist for Individuals and Unincorporated Business Owners

The deadline to file our tax returns is quickly approaching, resulting in slight feelings of panic for some individuals and small business owners.  As someone who provides tax services for a living, I have found that (like with many things) the stress is far more manageable when you know exactly what you have to do (rather than a vague idea that documents need to be located and forms need to be filled in).  One of the best ways to mitigate this stress is to prepare a checklist.  If you are looking for a comprehensive tax checklist , David at The Tax Issue has prepared an excellent one and I recommend that you check it out.

The checklist below has some of the more common income, deductions and credits that the majority of taxpayers are likely to have:

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Preparing your Small Business and Self Employed Tax Return with UFile Tax Software

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. 
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12 Tax Tips for the Self Employed

The self-employed lifestyle holds great promise when you first embark upon it, however you quickly find yourself doing things that you would never have dreamed of.  You are expected to take on role of salesperson, market researcher, accountant, lawyer and social media expert, while not getting paid for any of it.  Your available funds do not allow for outsourcing and at times you are not even aware of what you don’t know.  Luckily the internet provides a wealth of tips and tricks to make these tasks a little easier, and with a little discipline, some aspects of your self-employed existence can be made much simpler. Ensuring that you keep on top of your finances and tax obligations is one of those much hated, but absolutely necessary tasks for which it is essential to have a system in place, even if you do have an accountant. 
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CPP/QPP Obligations for Self Employed Workers

When you are self-employed, you are essentially taking on the role of employer and employee.  As such self-employed individuals are required to remit both portions of the CPP or QPP to Federal or Quebec respectively, which is calculated on your earnings for the year.  This only applies to unincorporated business as if you are an incorporated business, you are an employee of the corporation regardless of whether or not you own the business.

The QPP rates for 2011 for self-employed persons is 9.90% of your net business/self-employed income for the year.  The maximum amount payable for 2011 is $4.435.20, which means that if you earn more than $48,300 of net business income, your QPP will remain $4,435.20 and there is a basic exemption of $3,500 i.e. if you earn less than $3,500 you do not have to pay QPP.

EXAMPLE #1: Income is less than maximum

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15 Canadian Small Business Facts and Figures

 

Canada is a nation of small businesses.  In fact the vast majority of business in Canada are technically defined as small businesses i.e. less than 100 employees.  Industry Canada keeps track of the facts and figures as they relate to small businesses, some of the more interesting ones are enumerated below:
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Guidance on Registering for Payroll and Remitting Source Deductions

 

There comes a time for many small business owners when they decide that they need to hire employees.  This is usually an excellent sign as it means a) the business is growing and b) the small business owner has learned to delegate.  It also means that additional paperwork needs to be filled out and additional taxes need to be paid.  The simplest option when deciding to augment your workforce is to have the new worker invoice the business, based on hours worked or some other formula.  Unfortunately, there are very specific rules as to who qualifies as a self employed contractor.  Essentially, if your worker  is working full time, has little flexibility and you provide the tools, then the tax authorities will classify them as an employee.  In this case, you must take your new worker on as an employee, register for payroll, pay them a salary and submit regular, periodic payroll reports and payments to the Canada Revenue Agency (CRA).  As usual, if you live in Quebec, you must submit to Revenue Quebec (MRQ) as well.  The registration procedure is discussed below:

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Revenue Canada Interest, Penalties and Payment Arrangements for Income Tax and GST/HST Returns

Whether you are an individual or a business in Canada, taxes are an inescapable part of your existence.  All sources of income need to be calculated, tax returns needs to be filed and taxes owing must be paid.  This is somewhat facilitated if you are an employee as your employer tends to take care of the majority of remittances.  Self-employed individuals, sole proprietorships, partnerships and corporations on the other hand, must account for their income and expenses , determine taxes payable  and remit the appropriate amounts.  Additionally, businesses are also responsible for other filings including GST/HST and QST and payroll.  A lack of knowledge, imperfect accounting systems and the business of running a business sometimes interfere with the timeliness of filings.  The Canada Revenue Agency attempts to curb these tardy behaviours by imposing penalties and interest on late filings as follows:

Unincorporat

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Quebec Parental Benefits for Self Employed Workers

Parental benefits in Canada are administered by Service Canada.  They fall under the EI program, and to receive benefits it requires opt in to the EI plan for self employed individuals. However, in Quebec, unlike the rest of Canada (a common theme with Quebec), parental benefits are administered by the Quebec Parental Insurance Plan (QPIP), which does not specifically require opt in.  Instead all workers in Quebec whether self employed or employees are required to pay premiums, based (similar to QPP) on their insurable earnings.  For the self employed, premiums are payable at a rate of 0.86% upto maximum insurable earnings of $62,000. 

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