A common an unfortunate situation that many employees face at their year-end, is that they receive a T4A and realize that no taxes have been deducted says Edmonton bookkeeping. That means that a person will be expected to pay all of the tax in full when they file their personal taxes. This can be an extremely devastating situation for many people, especially because the Fraser Institute reports that the average Canadian pays 43% of their entire income in a variety of taxes including income tax, fuel tax, GST, EI, and CPP. To understand how large this is, the remaining income that they receive after taxes are deducted, 37% of that goes towards their food clothing and shelter. This makes taxes the single highest expenses that Canadians are going to have in their entire lifetime, including their house. It can be quite difficult to expect a person to pay almost half of everything that they earned any year in taxes if they have not been prepared and saving that money ahead of time.
There are many things that a person can do, in order to minimize those taxes when they file their tax return. Edmonton bookkeeping recommends that if this is a situation, people should claim that they are the owners of a proprietorship. Any income that a person earns that is not taxed income, can allow them to claim that they own a proprietorship. A proprietorship is essentially an unincorporated business, that shares the same tax obligations as the business owner. That means that if it is not taxed, a person can claim that they are business owners, and file business taxes the same time they file their personal taxes. The reason why a person would want to consider this, is because they can minimize the taxes that they pay as a business owner, through claiming a variety of business and personal expenses and income splitting.
The first thing that people need to understand is it will not affect their tax filing much, they just need to have an additional form called an R2125, and get their paperwork in order. Canada revenue agency understands that getting this paperwork in order might take as a proprietor an additional amount of time, therefore they are taxes will be done on June 15 rather than April 30. People need to understand, however, if they owe taxes to the government, they start accruing interest on that amount on April 30, so they may want to make proactive and pre emptive tax payment ahead of time, so they are not hit with having to pay additional taxes because they owe money.
Once a person has decided to file their taxes as a proprietor, and have received their forms, they can utilize a number of methods to minimize the taxes that they have to pay back to the government, which can be extremely beneficial not only to them but to their family as well. Learning how to do this can be a huge benefit to Canadians.
Edmonton Bookkeeping | When Should Employees File Personal Taxes As A Proprietor
If a person has not been taxed properly throughout the year on their paychecks says Edmonton bookkeeping, they may discover too late that they owe significant amounts of money to the government and are not prepared to pay it. This can be significant because the average Canadian pays just under half of their entire income on a variety of taxes. If they are expected to pay that back at the end of the year, it can be financially devastating. However, people can claim that they own a proprietorship, which is an unincorporated business, they can minimize the taxes that they pay.
One concern that a lot of people have when they hear about this method, is that they think that if they claim this income to the government, that is going to force them to have to pay GST, which is going to be an additional tax payment on top of the already large taxes that they are going to owe the government. However, Edmonton bookkeeping says that this is not true, the only requirement that a business has to start paying GST to Canada revenue agency is when they start making over thirty thousand dollars in a year. If a person with untaxed income is making thirty thousand dollars a year on their untaxed income, they may want to incorporate their business, instead of simply claiming a proprietorship and enjoy the benefits of incorporation including a lower business tax rates, protecting their registered tradename, be able to get their own WCB number and most importantly limit liability in their business and minimize their chances of getting sued.
Once a person has made the decision to claim their personal taxes as a proprietor, they should consider income splitting with their spouse. What this means, is that a proprietor, as well as their spouse, can split the amount of untaxed income between both of them on their tax form. This can help them minimize the taxes that they have to pay. For example, Edmonton bookkeeping says that if one spouse is a stay-at-home parent, they are not earning any income for the family, so by allowing the spouse to take all of the untaxed income, they are probably still paying the least amount of taxes possible. If the proprietor took all of that money on their own personal tax form, it may bump them up into a new tax bracket that he would have to pay even more taxes on. Income splitting is a great way for people to strategize the best way to split up the untaxed income on their tax returns to minimize the taxes that they pay.
Claiming taxes as a proprietor can also help them minimize taxes by being able to claim business and expenses like business portions of their travel, rent from their home office, mileage, meals and entertainment. This can help minimize the amount of taxes that a proprietor will have to end up paying.