Taxation for Self-Employed Individuals and Small Businesses
It is always better to be pro-active, rather than reactive when dealing with taxation. Proper planning is critical in helping individuals maximize their tax refund and reduce the overall risk of being audited by the Canada Revenue Agency. Self-employed individuals must file their tax return every year by June 15th and, pay any balance in taxes owed by April 30th. The income generated from self-employed work is reportable as business or professional income on your personal tax return. It is crucial that you have documentation for all incoming fees you incur, such as income slips, receipts, contracts, letter agreements or invoices.
When earning revenue as a self-employed individual, taxpayers can deduct legitimate expenses incurred to earn business income. However, these expenses must directly relate to earning that business income. Ensure that all income and expenses are recorded and that you have some kind of trail, either paper or virtual. The Canada Revenue Agency asks that taxpayers keep their documents for at least 6 years. Hence, it is important to keep an archive of all tax-related documentation in order to defend your tax return.
If your small business is incorporated, the requirements will be different. You must file a corporate tax return.
Below you will find a checklist of the various receipts and documentation you will need to keep in order to prepare yourself for filing for small businesses:
Documentation You Will Need In Order to File:
- Records of all expenses — check registers or credit card statements, and receipts
- Business-use asset information (cost, date placed in service, etc.) for depreciation
- Home office information, if applicable
- Sales records
- Beginning & ending inventory (if applicable)
- Returns and allowances
- Local travel expenses, business trip expenses, depreciation costs for capital property, fringe benefits, business insurance costs, interest expenses, office supplies, rent expense, meals and tip expenses and costs incurred to operate a home office.
If you are unsure of any expenses you can or cannot claim as a small business owner, or for a more detailed listing of credits that you can be eligible for, make sure to consult with your accountant.