One of my ongoing challenges is defining what it means to be a small business owner.

From a tax perspective, whether you’re a self-employed gig worker, freelancer, independent contractor, or solopreneur, you are essentially seen as a small business. What this effectively means is, if you’re unincorporated, you’ll report your business income and expenses on the T2125 form (statement of business activities) as part of your personal tax return. If incorporated, you’ll file a T2 corporate return.

In addition to small business income, the question arises, what other types of income do you have to report and what is non taxable?

As tax season approaches, a question that I get often is whether you should do your own taxes or outsource them to a tax preparer or accountant. My answer, perhaps unsurprisingly, is that it depends.

The first and perhaps most important factor is to determine the level of complexity you are dealing with. If your situation is simple e.g. you have a T4 slip from your employer, RRSPs and a couple of donations, it is quite easy to do it yourself especially using tax software which guides you through the process. However, if you have sold a principal residence or rental property, or have an active investment portfolio or another arcane tax event , and you are unsure of how to deal with this, it might make more sense to outsource so that you are not doubting whether you have done it correctly.

A common concept that I find myself explaining, when I talk to people about their taxes, relates to earned vs passive income.

This might sound a bit yawn inducing, but (like marginal tax rates), the type of income you earn determines how it’s taxed, how much you can contribute to your RRSP, and even what benefits you qualify for.

As we approach the deadline to contribute to RRSPs which is February 29th , I thought it would be useful to look at the potential sources that might contribute to your retirement income. For many of us, retirement seems like a long way off and consequently we perhaps don’t spend enough time thinking about it until it’s too late to make much of a meaningful change.

In my last newsletter article about RRSPs (around this time last year), I highlighted how 5,000 per year over 30 years i.e. a total investment of $150,000 invested at 5% (which is lower than the average return on the stock market) would result in $338,899.11 at the end of 30 years. This applies to all types of investments and is essentially the power of compounding which is a function of the rate of return and time i.e. the number of years the investment is earning the return. This demonstrates that contributing, even small amounts, as early as is possible, can lead to a significant nest egg.