One of the reasons why an employee might want to claim their taxes as a proprietor says Edmonton bookkeeping, is if they have any on taxed income that they earned over the past year. The reason why they might want to do this is because the average Canadian pays 43% of their entire income on a variety of taxes, making taxes the single largest expense that a Canadian faces. If they have earned income that is untaxed, by claiming that they own and unincorporated business can help them minimize the taxes that they have to pay on that income.
One thing for people to remember when they are claiming proprietorship is that any amount of income that they earned any year can allow them to claim as a proprietor. Whether it is their main form of work, such as hairdresser, massage therapist or music instructor. Or, they can be an unincorporated contractor, for example, an instructor in a dance studio, or fitness facility that gets paid a business check, but that business check does not have source deductions taken from it because they are not an employee. But this also could include people who earn money on the side by doing odd jobs for friends, family or neighbors like house cleaning, snow shoveling, or driving people to the airport for a few dollars at a time. The reason why this is important to note because since there is no minimum amount that a person needs to earn in order to be able to claim on their taxes that they are a proprietor, a wide variety of people can use this in order to minimize the taxes that they pay.
One of the first things that people get worried about, is that they are going to need to start electing GST if they claim on their taxes that they own a business. However, Edmonton bookkeeping says that business owners of proprietorships only have to start sending GST to the government when they make thirty thousand dollars or more on untaxed income. And if that is the case, they should talk to their accountant about incorporating their business, not just claiming as a proprietorship. Incorporating can allow people to enjoy and 11% tax rate, as well as limits the liability that they have in their business.
One of the benefits that people have with claiming that they are proprietor, is that they can start to claim a variety of business as well as personal expenses. For example, if they have a home office they can claim rent from that home office, but also claim home-office expenses such as utility bills, phone and Internet, property tax, condo fees. Other business expenses that they can claim are a business portion of their travel, mileage that they have driven, as well as meals and entertainment.
When people have earned any amount of untaxed income in the year, they can claim that they are a proprietor, and minimize overall, the amount of taxes that they need to pay to Canada revenue agency.
Edmonton Bookkeeping | Why Would An Employee Claim Taxes As A Proprietor
A scenario that is not entirely uncommon in Canada is when a person gets their T4 a form at the end of the year, they realize that their employer was not deducting CPP, EI, or income taxes from their pay says Edmonton bookkeeping. Why this is significant, is because that means that a person will be expected to pay all of their taxes to Canada revenue agency upon filing their personal tax return. Since the average Canadian pays 43% of their entire income in taxes according to the Fraser Institute, this can be a significantly a large tax bill that a person has to pay. If it is unexpected, it can be financially devastating.
In order to claim taxes as a proprietor, a person has to have earned any untaxed income in the last year. In order to claim that they have an unincorporated business, all they have to do is fill out a form called the T2125, and file that along with their personal tax return. Canada revenue agency says that since proprietors might need additional time to get their paperwork in order, because they could be claiming a variety of expenses, instead of the typical April 30 deadline to file taxes by, proprietors will have until June 15. Edmonton bookkeeping says that business owners of proprietorships need to be aware however if they owe any taxes to the government, they will start accruing a 1% interest on April 30 despite the fact that they have an extended filing deadline. In order to minimize this, they should think about sending a prepayment, they can avoid getting a penalty and being forced to pay even more taxes.
One significant benefit of claiming taxes as a proprietor says Edmonton bookkeeping, is that their spouse can also claim as a proprietor. The reason why this is significant is more than just the extended tax deadline. A person can utilize income splitting with their spouse to help minimize tax payments. The way this works is if a business owner earned more money than their spouse, they could give most of the untaxed income to the spouse to claim, because that is not going to bump the spouse up into a different tax brackets, or because the spouse is making significantly less money in a year, and will be able to pay the least amount of taxes on that amount. By strategizing how to split the income between the two people, can help a person minimize the entire amount of taxes that they need to pay.
People can also claim capital cost allowance, which will give them additional money back on their taxes, which can minimize the taxes that they have to pay. If they use a vehicle at all for business purposes, they can claim this CCA. And if they happen to own any equipment that they used to do their work, there able to claim capital cost allowance on that as well.
When people strategize on how to minimize taxes if they have had on taxed income in the last year, they can significantly minimize the amount of taxes that they have to pay total.