One problem that some employees may face, especially if they are an unincorporated contractor, is that they get their T fours at the end of the year and realize that their employer was not deducting taxes throughout the year like they had assumed said Edmonton bookkeeping. This can be a significant oversight because many Canadians pay almost half their income in taxes. It can be quite devastating for an employee to realize this at the end of the year if they have not been proactively saving half their income to pay taxes later.
Luckily, there are options for people who have encountered the situation. Rather than claiming that entire amount on their personal income, and being forced to pay taxes, Edmonton bookkeeping recommends that employees claim their taxes as a proprietor. A proprietorship is an unincorporated business that shares the same tax obligations of the business owner. Anyone who has earned any amount of a taxed income in the year no matter how small can claim that they are proprietor on their taxes. This does not change their tax filing date much, it just means they have to fill out an additional form in order to be able to claim that they are the proprietor. By filing on June 15 instead of April 30, the additional forty-five days allow people to gather the paperwork required to claim that they are a proprietorship.
One of the most significant things that claiming a proprietorship does, is it allows business owners to income split with their spouse. This can be a huge benefit, because if they can split the income between the two of them, they may be able to significantly minimize taxes on that income. For example, if one spouse makes significantly more than the other, the spouse making less can claim most or all of the untaxed income, and they will pay less taxes then the spouse who earns more. They can make the split be whatever makes sense to not bump either of them up into a new tax bracket to avoid them paying additional taxes.
Another benefit that business owners of proprietorships get when they claim proprietorship, is that they can claim a variety of personal expenses on their personal taxes. Edmonton bookkeeping says that if they have home-office, they are able to claim the home-office expenses on their taxes. How they would do this, is calculate the square footage of the office that they use in their home, and figure out what percentage of the house that is. Whatever percentage of the house the office is, they can claim that percentage of their utility bills including power, water and gas, as well as Internet, condo fees, property tax and rent or mortgage. They also may be able to claim their cell phone bill, and that can help minimize the amount of taxes that they have to pay. The only thing that they have to take into consideration, is that they cannot create a loss in their proprietorship, they can only claim up to as much as they earned. By doing this strategically, can help proprietors minimize the taxes that they pay.
Edmonton Bookkeeping | What Can Employees Do When Taxes Are Not Deducted During The Year
If employees have a significant amount of an untaxed income that they earned throughout the year, Edmonton bookkeeping says they may want to claim that they are proprietor in order to minimize the taxes that they have to pay. This can help an employee significantly, since the average Canadian pays 43% on taxes throughout the year, and the highest personal tax rate in Alberta is currently 48%, making taxes one of the most significant payments that a person is going to make. To find out at the end of the year, that they have to pay that in one shot can be financially devastating.
How claiming as a proprietor can help, is that it allows employees to income split with their spouse, and claim a variety of business and personal expenses to minimize the taxes that they do have to pay. Edmonton bookkeeping says there is a variety of business expenses that they can claim once they file taxes as a proprietor. If they have done any travelling, they are allowed to claim the business portion of that travel, rent from their home office, any mileage as well as meals and entertainment. one thing that they need to know if they do this, is that they need to keep receipts, or copies of as well as keep detailed notes so that they can make these claims on their taxes.
Edmonton bookkeeping says For mileage, it is also very important that they track it properly and as per Canada revenue agencyís guidelines, because they frequently request proof of the mileage, and if it is not recorded accurately, they do not allow entrepreneurs to use it. How entrepreneur can track their mileage properly, is to have a notebook, or they can even use an app on their smartphone and there is dozens of free ones, and they need to keep track of the date they travelled, where they are coming from, where they are travelling to, the total number of distance driven, and what the purpose of the travel is. It is very important that people do not include commuting to and from work, because they would incur that cost whether they were a business owner or not, and it can only include business-related activities. However, if a person has run errands for the business while on their way to or from work like meetings, going to the bank, or picking up supplies, they can include those distances from home or from work.
People who claim taxes as a proprietor are also allowed to claim capital cost allowance on their vehicle if it is being used for business purposes, and any equipment that they may have purchased for business uses as well. This can further help minimize the cost of the taxes that they have to pay on their untaxed income at the end of the year.