12 Tax Tips for the Self Employed

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 among the most important of these tasks for which it is essential to have a system in place so that you can maximize tax deductions, minimize taxes payable and reduce amounts that you have to pay to CRA and RQ. Below are some tips and strategies to help with this process:

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The Importance of Breakeven Analysis for Business Owners

The Importance of Breakeven Analysis for Business Owners

When embarking on your new business venture, one of the first and most important concepts that you will be introduced to, very simply, is the amount of revenues you need to generate to cover your expenses.  A good grasp of this is essential since even businesses with significant sales revenues can incur losses.

The starting point of any breakeven analysis is to determine your businesses variable costs which are effectively costs that vary with each product made. These include the materials, packaging, labels, shipping etc. Next is to determine fixed costs which can include rent of the premises, salaries paid to employees, office/computer expenses, subscriptions, bank fees, professional fees (paid to accountants and lawyers etc), supplies, telephone and utilities and anything else that is specific to the business for which a fixed amount is paid. Note that this can also include direct costs like labour and machinery since the inputs of these cost do not vary with the output i.e. volume of product sold.

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24 Cost Effective Ways to Promote Your Small Business

24 Cost Effective Ways to Promote Your Small Business

After thinking long and hard you have decided that is time to launch your own business.  You have a great product or service, you’ve come up with a compelling business name, all the paperwork has been filed and you have picked out the perfect location (or setup a snazzy new home office).  All pieces are in place for your new independent life as a business owner.  And then you realize that nobody except your spouse, family members and possibly your cat knows about your new venture.   So, how do you bring your fabulous new product or service to your target market's attention?  One way is to use the “build it and they will come” approach.  This is usually not particularly effective (even Google, who historically launches products with little fanfare, could benefit from a little more marketing).  The other, more effective approach is to get out there and promote your business.  Of course in the initial stages, marketing budgets tend to be minuscule.  On the other hand, many new business owners have time on their hands, while they wait to be deluged by orders.  Below is a list of 24 cost effective ways to promote your small business:

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How to Pay Dividends: Completing the T5 Slip and Summary

How to Pay Dividends: Completing the T5 Slip and Summary

This post has been updated to reflect changes in 2019

If you are the owner of a corporation, you can choose to pay yourself (and other shareholders) dividends instead of a salary, or they can be paid in addition to a salary.  If you do decide to pay yourself dividends, it is important to ensure that you prepare the proper documentation for Revenue Canada (CRA) and if you live in Quebec, Revenue Quebec.  The documents are due by February 28th of the calendar year following the year in which the dividend was paid.  And although no taxes are due at the time of filing with the government, interest and penalties apply for late payment.  The documents that need to be filled out and returned to the CRA and MRQ are discussed below:

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How to Register a Small Business in Quebec

How to Register a Small Business in Quebec

Budding entrepreneurs wanting to setting up a small business (or becoming self employed), either on a full time or part time basis, are often not sure where to start.  The process of registering a business in Quebec, depending on your circumstances,  can actually be quite straightforward .  Below we look at the questions that you need answer to determine your business registration obligations:

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What Types of Car Expenses Can Business Owners Deduct

What Types of  Car Expenses Can Business Owners Deduct
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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Guidance on Registering for Payroll and Remitting Source Deductions

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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Guidance on Deducting Home Office Expenses

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 reduction in your tax bill for costs that you would incur regardless, which is certainly an incentive to 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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Revenue Canada Interest, Penalties and Payment Arrangements for Income Tax and GST/HST Returns

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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10 Payment Alternatives to Help Small Businesses Get Paid Faster

10 Payment Alternatives to Help Small Businesses Get Paid Faster

One of the numerous ways in which technology has benefitted small businesses has been to increase the number of payment options available.  While  conventional methods of payment like cash and cheque still exist, there are also a variety of other options like debit cards, internet transfers and mobile payments that have greatly facilitated payment infrastructure and made financial management significantly more flexible.  Every business owner must wade through the alternatives and decide what type of payment options are right for their customers.  This is based on several factors including their industry, common practices, location and of course business specific considerations.  For example, a retailer will usually allow for payment by credit and debit cards, cash and possibly some form of mobile payment.  Conversely, a law office may not offer a credit card option, but request payments via cheque or bank transfer.

Some payment alternatives for small businesses to consider are discussed below:

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7 Reasons Why Debt is Good for Your Business

7 Reasons Why Debt is Good for Your Business

Debt is often perceived negatively. Debt can be “evil”, “crippling” and an “unforgiving master”( the last one from the Google query “Debt is…”;).   It suggests a lack of sufficient cash flow and an inability to fulfil your funding requirements.  It also an indication of increased risk, as if you are unable to service your debt repayments, it could have dire consequences for your business (see American Apparel).  There is however another side to debt.  The majority of large corporations have some level of debt.  It can be a great way for individuals to earn a return on their investment.  And of course it is an integral part of the engine that drives the world economy.  For small business owners, debt can actually provide some great benefits as long as it is managed responsibly.  Some of these are discussed below:

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Understanding Payroll Deductions: Personal Income Tax Rates, CPP/QPP, EI and Basic Exemption

Understanding Payroll Deductions: Personal Income Tax Rates, CPP/QPP, EI and Basic Exemption

The automation of the tax preparation and filing process has been a boon to individuals and tax preparers alike.   Gone are the days of struggling to find the right box on the return, adding everything up 5 times and still getting different results, and hoping that the CRA can read your chicken scrawl.  Present day tax software not only guides you through every step of the process, it also helps to optimize your allocations thereby reducing your taxes payable.  There is however at least one downside to automation: Since we are more removed from the actual calculations, our understanding of our tax situation is somewhat diminished.  We have an idea of what we expect to pay, which we can see every week on our paycheques (or for self employed individuals, the breathtaking moment when we see the final result on our tax return), but often we are not really sure how these amounts are derived.  Below is a discussion of the  tax rates, deductions and maximums to improve our comprehension of this somewhat complex topic:

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20 Essential Tax Facts for Small Business Owners

20 Essential Tax Facts for Small Business Owners

As the income tax filing deadline for the year approaches small business owners and their accountants are starting to feel the pressure.  Receipts need to located, invoices entered, bank statements reconciled.  Accountants’ offices are littered with shoeboxes and accordion folders while tax return checklists and missing info lists are being compiled and checked off.  Google is starting to note an increase in tax related searches as business owners and accountants search for clarity on a variety of tax regulations, deductions and deadlines .

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Should you Register or Incorporate Your Small Business?

Should you Register or Incorporate Your Small Business?

When embarking on a new business venture one of the first decisions that has to be made is the type of legal structure best suits the needs of the new business. In Canada there are essentially two choices - business registration (sole proprietorship or partnership/unincorporated entity) or incorporation.  Like many small business decisions, the answer in not necessarily straightforward and depends on the business owner’s specific set of circumstances:

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Accounting and Tax Treatment of Computer Hardware and other Fixed Assets

Accounting and Tax Treatment of Computer Hardware and other Fixed Assets

Investment in capital items such as computers, furniture, equipment and cars can cause confusion for small business owners.  Since these are purchases that affect the cash flow of the business, it seems that they should be accounted for as expenses similar to office supplies or rent.  There are however special rules for any acquisitions that qualify as “fixed assets”. A fixed asset, simply speaking, is an acquisition that provides a long term economic benefit to the business. In other words, any business purchases that has a useful life that extends beyond one year, will usually qualify as a fixed asset. Below I discuss the accounting and tax treatment of fixed assets.

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Excel for Small Business Owners

Excel for Small Business Owners

As a confirmed excel nerd, there is something about large amounts of data that I am inextricably drawn towards . I suppose it has something to do with an affinity for organization combined with a love of numbers and the innate desire to solve problems. As an accountant and financial consultant , I am often presented with the task of organizing and analysing data into a format that allows for greater insight into my clients businesses . And although good accounting software is absolutely necessary for any small business owner, a significant amount of analysis and reporting is done most effectively in excel.

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How Being Prepared for Bad Debts can Improve Cash Flow Decisions

How Being Prepared for Bad Debts can Improve Cash Flow Decisions

One of the more unpleasant aspects of being a business owner is having to chase clients that do not pay.    It is simeltaneously frustrating, stressful and disheartening, while attempts to collect are an utterly unproductive use of time and can have a significant impact on cash flow, particularly if you are unprepared.

There are ways to mitigate the possibility and impact of bad debts.  Some of these include: 

  • Performing a credit check on potential customers
  • Charging a retainer, which is paid up front
  • Offering discounts for early payments
  • Allowing several payment options including credit cards which allows for immediate payments
  • Following up on delinquent receivables dilligently.

Regardless of your efforts to prevent them, incurring bad debts is often inevitable and ultimately, a cost of doing business.  Consequently, it is important to ensure that you are prepared.

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Top 6 Signs Your Small Business Might Need a New Accountant

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 to discuss the financial performance of the business

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Are Clothing and Other Personal Attire Costs Tax Deductible?

Are Clothing and Other Personal Attire Costs Tax Deductible?

Whether an expense is quite clear for the majority of expenses – salaries paid to employees, office rent, manufacturing supplies etc. , there are a handful of expenses that are more ambiguous.  One of the more notable (and often asked) examples of this type of expense relate to personal attire including clothing, shoes and other personal maintenance costs (haircuts, beauty products etc)  

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13 Ways an Effective Accounting System Can Improve Business Decisions

13 Ways an Effective Accounting System Can Improve Business Decisions

An accounting system can be an extremely powerful tool for business owners.  When structured with the specific needs of the business in mind,  it has the power (through the magic of debits and credits) to convert data into a format that actually tells an interactive, completely personalized story about your business.  The balance sheet is a snapshot at a specific date, while the profit and loss is more akin to a narrative.  By providing feedback on how your business is doing it allows you to control the course of your story (where hopefully everybody lives happily ever after) .  Some of the feedback that can be gleaned from your accounting system is discussed below:

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