Sometimes, employees get their T4 slips at the end of the year and realize that the incorrect amount of taxes were deducted from their income during the year, leaving them with a situation of having to pay all of their taxes at year-end says Edmonton bookkeeping. This can be very difficult because the average Canadian typically pays 43% of their yearly salary on a variety of taxes including income tax, CPP and EI as well as GST, fuel tax just to name a few. If this is the case, employees need a plan of action so that they can minimize the taxes that they are expected to pay.
One way that employees can minimize taxes is claim that they own a proprietorship. Edmonton bookkeeping says a proprietor is anyone who has earned income that is not regular, taxed income. If employees did not have source deductions taken off their paychecks, this qualifies them in that category. Also, because the threshold for what is considered a proprietorship is very low, anyone who earns any untaxed income at all throughout the year in any amount can claim that they have a proprietorship. Whether they work from home and get paid directly by their clients like a hairdresser, or massage therapist, or if they are an unincorporated contractor, but also this count if they have earned very casual income, doing odd jobs for friends or family like driving people to the airport for gas money, house cleaning, snow shoveling and mowing lawns. This all counts towards a personís ability to claim proprietorship.
Many people are not sure what a proprietorship is, especially as it relates to other traditional businesses. Edmonton bookkeeping says that the difference between a proprietorship and a corporation is that a proprietorship is an unincorporated business that remains legally attached to the business owner, as well as the business owners’ tax requirements. A corporation, on the other hand, is a completely separate legal entity that has its own tax requirements and is completely separate from the business owner.
The reason why people would want to claim that they have a proprietorship if they had not had source deductions taken off their income throughout the year, is because it will allow them to create a set of rules on how to handle that income. For example, they will be allowed to claim a variety of business expenses as well as personal expenses on their personal taxes, which can help minimize the taxes that they have to pay. Also, being a proprietor can allow a person to have their spouse also file as a proprietor, which will allow them to do something called income splitting. Income splitting is when the employee who earned the taxed income can share some or all of the income with their spouse on their tax return to minimize taxes. For example, if the spouse is currently unemployed, and not running any income they may wish to claim a hundred percent of the untaxed income themselves, to minimize the amount of taxes that they have to pay on that.
Edmonton Bookkeeping | Minimizing Taxes At Year-End When Not Deducted During The Year
If people realize at the end of the year that the source deductions have not been coming off their paychecks throughout the year, Edmonton bookkeeping says there is many ways they can handle that situation to minimize the amount of taxes that they have to end up paying on that amount. The highest personal tax rate in Alberta is currently 48%, and average Canadians spend almost half of their entire income on a variety of taxes. Making taxes the single largest expense on Canadians even over their house and vehicles. Because of this, having a plan to help minimize these taxes is extremely beneficial.
If people can claim that they own a proprietorship, they are going to be allowed to do a variety of different things during their tax filing to minimize the amount of taxes that they have to pay. A proprietorship is essentially a business that is unincorporated. Anyone who has earned any a taxed income throughout the year no matter how much or how little can claim that they are the proprietor. One question that many people have says Edmonton bookkeeping, is if they claim that income to the government as part of a proprietorship, do they need to also pay CRA GST? The answer to this question is no, unless a person has earned more than thirty thousand dollars or more in a year, if they claim proprietorship, they do not need to send GST to Canada revenue agency. However, if a person has made thirty thousand dollars or more of a taxed income, they might want to consider what it would look like to incorporate instead and receive even more tax benefits.
If a person claims that they have a proprietorship, they will be able to claim a variety of business as well as personal expenses on their personal taxes. Edmonton bookkeeping says that people can claim business portions of any travel that they have done in that year, rent from their home-office, mileage and meals, and entertainment. If this is what a person is going to do, they should ensure that they are keeping not only good notes but their receipts as well.
When a person is tracking mileage, they need to do it very specifically, especially because Canada revenue agency frequently asks for proof of mileage, and they have many specific requirements. A person needs to keep a log that has the date, where they are coming from, where they are traveling, the total distance that they traveled during that trip as well as the purpose of travel. They also have to ensure that this is business related however it is not including commuting to and from work. The reason why CRA does not allow people to claim the commutes to and from work, is because whether they are an entrepreneur or an employee, they would be making that trip, so it does not count. However, it can include errands from home to work or work to home as well as meetings. So if a person goes to the bank, goes to a meeting, goes to the store to get office supplies for example, they will be able to claim this travel on their mileage.