A Guide To Preparing the T2125 For Small Business Or Self Employed Owners
Canadian Income Tax, Guides and Tutorials, Deductions and Expenses Ronika Khanna Canadian Income Tax, Guides and Tutorials, Deductions and Expenses Ronika Khanna

A Guide To Preparing the T2125 For Small Business Or Self Employed Owners

While being  self employed comes with numerous benefits, there are also many challenges. One of the major ones is ensuring that you are aware of, and fulfill, your tax obligations on a timely basis.  In the beginning these tax obligations can seem mystifying and somewhat overwhelming, but once you understand what needs to be done and you set up processes and reminders, it tends to become much more manageable.  This in turn reduces stress as tax deadlines approach and can result in significant potential tax savings as you keep track of all your tax deductions and avoid interest and penalties.

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What is Capital Cost Allowance and How Does it Impact Your Business
Quickbooks, Canadian Income Tax, Managing Business Finances, Deductions and Expenses Ronika Khanna Quickbooks, Canadian Income Tax, Managing Business Finances, Deductions and Expenses Ronika Khanna

What is Capital Cost Allowance and How Does it Impact Your Business

Frequently a client of mine will purchase a high ticket item such as a computer or a piece of furniture and will simply show it as an expense on their profit and loss.  Since you purchased something that relates to your business, it should be considered to be a deduction and classified as an expenses.

Unfortunately, accountants and revenue agencies do not see it this way.  From their perspective, an item that is purchased for a business, whose value extends beyond one year, is actually an asset that should be depreciated over the useful life of the asset.  In other words, the expense that you can claim for the asset is only the portion of the asset that is used in the year that you claim it.

While accountants refer to the amount of the asset that is expensed each year as depreciation, Revenue Canada refers to this as capital cost allowance or CCA.

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What Small Business Owners Should Know about Leasing vs Buying their Car, Corporate Ownership of Vehicles and Deducting Car Expenses
Canadian Income Tax, Deductions and Expenses, Managing Business Finances Ronika Khanna Canadian Income Tax, Deductions and Expenses, Managing Business Finances Ronika Khanna

What Small Business Owners Should Know about Leasing vs Buying their Car, Corporate Ownership of Vehicles and Deducting Car Expenses

Small business owners who require a vehicle to carry on their businesses are happily able to benefit from a tax deduction relating to the business use of their cars.  Given the potential for abuse, the tax rules for deducting these expenses are fairly specific and extend to the definition of business use, types of expenses that may be claimed, methods of calculating the deduction and whether you buy or lease your car.  While the decision to buy or lease a car can be difficult enough for individuals (a Porsche is so much more affordable when you lease!), small business owners have an even harder time as the tax implications of the transaction have to be taken into consideration.
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Tax Deductions vs Tax Credits and 5 Tax Deductions to Help Reduce Your Tax Bill
Personal Finance, Deductions and Expenses, Canadian Income Tax, Guides and Tutorials Ronika Khanna Personal Finance, Deductions and Expenses, Canadian Income Tax, Guides and Tutorials Ronika Khanna

Tax Deductions vs Tax Credits and 5 Tax Deductions to Help Reduce Your Tax Bill

Most taxpayers use the terms tax deduction and tax credit interchangeably. Since they are not accountants, this is perfectly fine unless you are particular about precision and strive for a greater understanding of tax. And while there a numerous technicalities and jargon in tax that are better left to tax professionals, this particular distinction is fairly straightforward , can useful to understand and might even save you some tax.

So, what is the difference? A tax deduction is a reduction of your net income on which your taxes payable are based, while a tax credit is a direct reduction of your taxes payable. These might sound very similar, but their impact on how much tax you pay is different. Since there are different tax brackets, a tax deduction results in a reduction of your taxes payable effectively at the highest tax bracket to which your income applies, while a tax credit (for simplicity we are only talking about the federal portion and not provincial) will only reduce your taxes by 15%, which corresponds to the lowest tax bracket. While this can get significantly more complicated, suffice it to say, if your income exceeds approximately $50k, tax deductions have a higher value i.e. they reduce your taxes by a greater amount than a tax credit since part of the $50k will be taxed based on a higher tax bracket.

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Financial Roadmap for Employees Transitioning to Self-Employment
Deductions and Expenses, Canadian Income Tax, Canadian Business Structure Ronika Khanna Deductions and Expenses, Canadian Income Tax, Canadian Business Structure Ronika Khanna

Financial Roadmap for Employees Transitioning to Self-Employment

Deciding to transition from being an employee to self-employed business owner/freelancer/independent contractor. can be a significant life event. It can certainly be exciting as you relish the thought of greater freedom, flexibility and the ability to exercise your creativity in ways that you cannot when you are an employee. However, there is also a great deal of uncertainty, both professionally and financially. And while you cannot control the outcome, understanding where the uncertainty might come from will help you be much better prepared.

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