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If you are an entrepreneur, sub-contractor or small business owner, tax season is likely one of your most challenging times of year. You may feel overwhelmed by mountains of disorganized financial paperwork, anxious about the prospect of owing money and stressed by the myriad rules and requirements and how they apply to your unique situation.
If this sounds familiar, you’ll be relieved to hear you can reduce or eliminate the tax dread for good. And you don’t have to be an administrative wizard to make it happen. Read on to discover how you can finally organize the financial side of your work life and gain the peace of mind to focus on what you do best.
This is more common than you might think, and certainly not a failing on your part. Your passion is your work, not the administration that comes with it.
However, being horrible with paperwork does not free you from the financial imperatives of running your own business.
If you – like a large number of business owners – either don’t know what’s involved in keeping accurate books and records or have zero interest in doing it yourself, don’t go it alone. Give yourself a strong financial foundation and engage the services of an accountant or qualified bookkeeper. That small investment will pay dividends in the future.
With that said, if you’re confident you can keep your paperwork organized, there are some steps you can take to make doing your taxes much easier.
Keep your records as meticulous and organized as possible. Do not throw everything into a pile, box or drawer and assume you can sort it out later. You will invest less energy, time and money by setting aside thirty minutes a week to organize your income and expenses.
Here’s how this process will look:
If you use your vehicle for both work and personal use, remember you can only count work-related mileage for tax purposes. Familiarize yourself with what counts as employment and personal vehicle use and purchase a mileage log to simplify your tracking.
File fuel receipts, vehicle maintenance invoices and any other vehicle-related expenses together. Keep several envelopes with appropriate labels in your vehicle’s glove box or seat console; this will help to streamline and simplify your vehicle receipts.
Again, during your weekly review, add your receipts to your spreadsheet – and keep them in one large folder or envelope for the month.
Note: if paper records don’t work for you, consider using mobile apps or computer software to scan receipts, automatically categorize your expenses and provide an overview of your business financials.
Organized paperwork and a clear record of your income and expenses will be extremely valuable come tax time – whether you go it alone, delegate the task to an employee or contract the services of a professional tax preparer.
The benefits are twofold:
Unfortunately, doing your taxes will not always yield the results you hope or expect. Perhaps you owe a large amount of money – or worse, didn’t set enough money aside to pay the bill.
This is another very common scenario. However, with some planning and realistic budgeting, it is also completely avoidable.
Whether you’re working for yourself or someone else, you must pay taxes.
This process was undoubtedly easier when you were an employee. Your employer did the work of deducting income taxes, Canada Pension Plan and Employment Insurance contributions from your paycheque. All you had to worry about was what you took home afterward – and maybe other factors like charitable deductions, RRSP contributions, etc. come tax time.
Take this same approach with running your business.
Your net pay is what you take home after deducting a percentage for taxes.
The amount you should take off will depend on many factors which a qualified accountant or bookkeeper can help you identify – though between 25 and 30 percent is a safe estimate. Remember, it’s better to overestimate now than it is to underestimate and wrestle with the consequences later.
Take these funds and put them in a separate bank account and do not touch them. The only purpose of this fund is to pay taxes and income-related remittances. Treat anything left over as insurance for future tax years.
Once you gross a certain amount of self-employment or subcontractor income, you will need to request a GST number, charge GST on invoices and file GST returns quarterly. Your returns will reflect not only what you charged for GST, but also any you have paid out for business expenses. Again, if you are unsure about your GST-related responsibilities, contract the advice of a qualified professional.
Too many business owners have run into financial trouble because they thought their bookkeeper was filing taxes and GST and paying outstanding balances when neither was happening.
Even if you have a qualified person doing your books, you are still responsible for filing your GST returns and paying any GST owed. It’s not enough to have someone do your bookkeeping – you need to understand their role and what you are paying them to do.
There are plenty of benefits to starting your own business and being your own boss. Yet, it can also be a challenge if keeping accurate, detailed and organized financial records isn’t your strong suit. Get the right advice now so you can follow your passion, focus on your business and enjoy the fruits of your labour.
Do your homework and speak with an accountant or small business expert. Establishing your business properly at the beginning – or even reworking your processes now, if you’re already up and running – will be an enormous weight of your shoulders.
If you’re a self-employed person or contractor struggling with overwhelming tax debt, you’re not alone. There are opportunities for you to achieve the financial fresh start you need and deserve.
A Licensed Insolvency Trustee offers Life-Changing Debt Solutions to help you eliminate your debt for good. During your
Free Confidential Consultation, your trustee will review your financial situation, seek to understand your goals and challenges and identify your options.
You may qualify for
Bankruptcy or a
Consumer Proposal, which can help you become debt free within 9 to 21 months of your initial filing. And you may also benefit from other services and referrals to improve your chances of lasting, long-term success. Your Licensed Insolvency Trustee will help you make the best decision for your unique circumstance and set you on the path toward lasting financial health.
Based out of Abbotsford,
Linda Paul is a Licensed Insolvency Trustee and Senior Vice-President at MNP LTD. Based out of Courtenay,
Selina Jacobson is an Assistant Estate Manager at MNP LTD. To learn more about how MNP Debt can help, contact our local office at 1.877.363.3437 or toll-free at 310.DEBT (310.3328).
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*310-DEBT doesn’t operate in MB, NW ON and QC.
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