One difficult situation that many employees face at the end of the year, is receiving their T4ís or T5ís, and realizing that the appropriate income tax has not been deducted from their paychecks says Edmonton bookkeeping. The reason why this is so significant is that the average Canadian pays 43% of their entire income on taxes. This can be an extremely large bill to have to deal with if they were not prepared throughout the year by saving money in order to pay their taxes later. This can be financially devastating, not only for business owners but for their families. However, there are some steps that a person can take in order to minimize the taxes that they have to end up paying on untaxed income.
The first thing that people need to understand, is that anyone can claim that they are proprietors on their taxes if they have earned any income that is not taxed. Since there is no threshold or minimum amount required to make in order to claim proprietorship, that means anyone who has earned any amount of money ever in the last year can make this claim. Edmonton bookkeeping says that what a proprietorship is, is an unincorporated business, that shares the business owners and tax obligations. If they were earned any untaxed income, they can claim that they are a business, and they have to fill out a special form when they file their personal taxes at the end of the year.
Why a person might want to claim that they are up proprietor, is so that they can use income splitting in order to minimize taxes. Edmonton bookkeeping says that if the employee has a spouse, they can share that untaxed income with the spouse on their tax return, in order to minimize taxes. The more money a person earns, the higher a tax brackets they get moved into, so this can help avoid that circumstance. They may also want to consider if there is one spouse who has earned significantly less in the year than the other one, by giving them most of the income to claim, can help them minimize the taxes overall that they pay.
Many people worry that if they claim that they earned income as a proprietor, that they are going to owe Canada revenue agency GST. This is only true if they earned over thirty thousand dollars in a year. If an employee has not earned that amount of money, they have nothing to worry about. However, they may want to consider incorporating, because that can allow them many secondary benefits, as well as a much lower tax rate. The small business corporate tax rate in Alberta is currently 11%. People can save up to 37% of their income taxes by incorporating it.
There are many options that a person has if they have made untaxed income throughout the year so that they can minimize the taxes that they pay, and increase the amount of money that stays in their pocket.
Edmonton Bookkeeping | Why Employees Should File Taxes As A Proprietor
Canadians may discover at the end of the year, when they receive their T4 slips, that their employer was not taking off-source deductions from their income properly Edmonton bookkeeping says. A business owner is required to take off income tax, CPP as well as EI off of every check that they give to their employees. If they have not been, and the employee has not been saving money, they will be expected to pay their unpaid taxes at the end of the year. This can be a significant amount, since the highest personal tax rate in Alberta is 48%, and the typical Canadian pays 43% on taxes. Most Canadians are paying approximately half of their income on taxes loan.
By claiming that they own a proprietorship, employees are able to benefit from claiming expenses on their personal taxes that can help minimize those taxes. For example, a person will be able to claim any business portion of traveling that they did in the previous year, rent from their home-office including portions of their utility bills, Internet and phone bills, condo fees, property tax and even a portion of their rent or mortgage. They also can track mileage, and claim that on their taxes as well as meals and entertainment. Edmonton bookkeeping says that this can be such a significant amount, that it can cause some proprietors do not have to pay any taxes at all. I cannot create a loss in their business, it can just avoid any taxes that they do have to pay.
It is also possible for people to claim a capital cost allowance, if they are using a vehicle for business purposes, or if they have any other equipment that they use to earn money. Edmonton bookkeeping says that this can help minimize the taxes that a person who is claiming proprietorship on their personal taxes owes.
It is also possible for people who are claiming proprietorship on their personal taxes, that they can apply on capital losses to their income. Not only can they carry it forward, they can also carry it back up to three years. This can be very beneficial, helping people claim losses on years that they know will help them earn money back on their taxes when they claim a loss. By being able to claim a loss, they can earn money back, which will go towards minimizing the taxes that they do have to end up paying.
This can be extremely beneficial to people who have found that they need to pay taxes at the end of the year because they were not being taken off their checks properly. The only thing that they have to remember, is to fill out an additional form and to ensure they have good records of all of the expenses that they are claiming says Edmonton bookkeeping.