Many people may not understand that if they file their personal taxes as a proprietor, they could potentially save a significant amount of taxes on their personal tax return says Edmonton bookkeeping. A proprietorship is an unincorporated business, that is not a separate entity from the business owner. A corporation, on the other hand, is a separate entity that has its own liability and tax rules.
The threshold for what income a person has to earn in order to be considered a proprietor is extremely low, therefore it can be achieved by many people. When people claim their personal taxes as a proprietor, not only are they able to claim a variety of different expenses both business and personal, but they will also be able to utilize income splitting and utilize capital losses to save on taxes, and even get tax returns from up to three years ago.
In order for a person to be considered a proprietor of the business, is when they earn any income that is not directly related to their employment and has not already had a source deductions taken from it. Examples of types of income that could allow the person to claim that they are proprietors are: when people get hired as an unincorporated contractor when they have been business directly with a client, whose paid them directly, for example, a massage therapist or piano teacher working out of their home. People that have also learned casual income through housecleaning, snow shoveling or lawnmowing for example even if it is not regular, can also claim that they have a proprietorship. Edmonton bookkeeping says there is no minimum amount that a person has to have made in a single year in order to be able to claim this, therefore any amount of money for any reason can be used to claim this.
One concern that many people often have when they are exploring this option, is that they worry that they have to start collecting GST. Edmonton bookkeeping says that this is not necessary, the only time a business is required, is when their business starts earning over thirty thousand dollars per year.
In order to file their taxes as a proprietor, people need to understand that they have to file proprietorship paperwork at the same time as their personal taxes. While the typical deadline for personal taxes is April 30, CRA has granted an extended period of time for anyone with a proprietorship. That extension is forty-five days, so proprietors and their spouses have until June 15 every year to claim their taxes. A great benefit that people can have is since their spouses able to also claim that they have a proprietorship, they can utilize income splitting, to ensure that the family member who has earned the least amount of money in the business can claim some if not all of the additional income they should ensure that they are not forcing anyone to be pushed over a tax bracket so that they can pay the minimal amount of taxes possible on that amount.
Edmonton bookkeeping | why file taxes as a proprietor
43% is the amount that the average Canadian pays in taxes currently says Edmonton bookkeeping. That is a significantly high amount, almost half of what a person makes, being spent in a variety of taxes. The highest personal tax rate in Alberta is currently at 48%. Minimizing taxes is a huge concern for most Canadians, however, there is a way that many Canadians are not aware of that can help minimize the taxes that they pay, as well as allow them to claim a certain number of business and personal expenses on their personal tax return.
If people can claim that they own a proprietorship, they will be able to file their taxes as a proprietorship, and claim benefits on their tax return that they would not have otherwise been able to do says Edmonton bookkeeping. Types of expenses that people can claim once they are able to claim as a proprietorship include: mileage in their vehicle, the business portion of any travel they do, meals and entertainment, as well as rent from their home office.
It is extremely important that if this is what a business owner of a proprietorship is going to do, that there keeping a great record as early as they can in their business. This will make things easier will there filing their proprietorship paperwork, but it also will help if CRA asks to see any of the paperwork. This is especially true for mileage, Canada revenue agency is very well known for requiring proof of mileage.
In order for a business owner of a proprietorship to track their mileage properly, Edmonton bookkeeping says they need to to do the following: keep a record of the date of travel, where they are coming from, where they are driving to, the total number of kilometers that they have traveled, as well as the purpose of their travel. They also have to follow the following guidelines: it must be business-related, and also must not include commuting to and from work, but can include errands or meetings to or from work and home.
Edmonton bookkeeping says there is also some personal expenses that a person is going to be able to allocate to the proprietorship. This includes a portion of the utility bills, including phone and Internet, condo fees, rent or mortgage, and property tax. How they can calculate this, is by figuring out the square foot space that there home office uses, and what percentage of the home that is. That percentage is the amount that they can claim out of all of those aforementioned bills.
It can be a significant benefit to many people, once they have passed the threshold of being able to claim that they own a proprietorship so that they can file their personal taxes as a proprietor, and allowing themselves to claim business and personal expenses in order to minimize the amount of taxes that they will be expected to pay.