It’s getting close to that time of year again – the deadline to file your taxes. Today, we’ll look at some of your most taxing questions regarding what to do with your personal and professional income.
Taxing Question No. 1: How do I file small business income if I’m a solo-entrepreneur?
You will file in one of two ways: on your personal return or on a corporate return. The size of your company does not matter. What matters is if you are incorporated or not. If you are unincorporated, report your income on the applicable individual form. If your company is its own entity (can legally designate with Corp. Inc. or Ltd.) you need to file a corporate income tax return, even if you don’t have any tax owing (inactive) or if your company is a non-profit or tax-exempt.
Taxing Question No. 2: My income comes from gigs and/or tips. Do I need to report that?
Yes. If you drive for Uber, gets tips as a bartender, freelance with a laptop from your kitchen table – it all counts. Income is income in the eyes of Canada Revenue Agency (CRA), and that means your tips too.
Think you won’t get caught by not reporting money you made in cash? Think again. Remember, the corporations you freelance for keep very good records and report their income and expenses. Companies like Square and PayPal have been forced …very nicely asked to hand over their records. It’s not hard for CRA to check and figure out who is not reporting cash or gig income.
Taxing Question No. 3: I can file late, right?
Of course you can! You’ll just enjoy fees and penalties for the privilege! If you owe tax for 2017 and file late, the penalty is 5 per cent of your 2017 balance, plus an additional 1 per cent of the balance owing for each full month your return is late, to a maximum of 12 months. It’s slippery slope, my friends! Look at what CRA says about late returns from previous years:
“If we charged a late-filing penalty on your return for 2014, 2015, or 2016 your late-filing penalty for 2017 may be 10 per cent of your 2017 balance owing, plus 2 per cent of your 2017 balance owing for each full month your return is late, to a maximum of 20 months.
By the way, you don’t want to pay what you owe late either. That gets you into the compound interest stream, which is a fast way to pay a lot more than you owe overall. Starting May 1, 2018, you’ll be charged compound daily interest plus penalties on outstanding amounts.
If making the payments will be an issue, contact CRA to discuss your options. You may qualify for one of their payment arrangements.
Taxing Question No. 4: Can I hide from all this?
No. The tax man cometh and he will eventually find you, but there is great news. You never have to tackle your taxes on your own. CRA itself, along with accountants, bookkeepers and financial planners, are here to help you navigate the tax landscape, along with your budget and other financials. Never hide from your money because it makes you uncomfortable. Reach out. With a little help, you can have peace of mind, file your taxes on time, and get on a clear financial path.
AF Accounting is here for Small Business Owners
We specialize in accounting and taxes for small business owners and we know all the deductions for which you qualify. Contact us today for help with your business taxes, whether you are incorporated or not.