If you’re among the nearly three million Canadians that Statistics Canada defines as self-employed, you know that doing your taxes is a bit more involved—and higher-stakes—than simply submitting a T4 form.
Caroline Battista, tax analyst for H&R Block, lays out the five things entrepreneurs can’t afford to overlook this season.
1. The CRA is cracking down on business travel
In the last four years or so, Battista has observed an influx of clients who’ve had their business travel claims questioned by the Canada Revenue Agency. They’re usually flagged because they didn’t provide enough detail, says Battista. The CRA appears to be taking a harder stance on these claims, “probably because it can be one of the biggest expenses,” she says. If you intend to claim your car use, you must keep a clear log of mileage and fuel costs and you may only file for trips that are on “business time.” The CRA has provided a handy guideline on how to keep a log that can be found here.
2. You can claim more stuff than you realize—but approach with caution
You can’t claim your cell phone bill unless you can prove the phone is for business matters only. If you really need that tax deduction, you’ll probably have to get a second phone, says Battista. Another troublesome area for solopreneurs is around Internet costs. People who work from home can expense their networking costs—but likely not 100% of it. For example, a person who runs a small business with an e-commerce site will be eligible to claim 10% or more of their Internet bill. On the other hand, someone who runs a home daycare may not be able to claim the expense at all if it’s not essential to the running of the business.
3. Track everything in extreme detail (or as much as possible)
When you purchase something for your business, it’s not enough to show the CRA a Visa statement, Battista says. If the CRA asks, you need to be able to produce the actual receipt from the point-of-sale. Don’t forget to write on the receipt the reason for purchasing. For business lunches, write down who you were with and the purpose of the meeting. A good habit to get into: File these receipts away immediately after (on the same day at least) and keep your business receipts separate from your personal ones. Battista recommends cultivating the mindset that “taxes are a year-round event.”
4. Do a dry run before filing for real
One way to see if there are any deductions you’re missing out on is to do a practice run. Battista recommends scanning a copy of the T2125 form, the Statement of Business or Professional Activities. This exercise is especially helpful for the newly self-employed, Battista says, as it gives you a clearer picture of how the CRA expects claims to be documented. There’s also a helpful section in there about how to calculate depreciation of your capital assets.
5. Your deadline to file is different
Hooray! You’ve got until June 15 (unless you’re owe back taxes—in that case you need to file with everybody else on April 30).
MORE FROM TAX WEEK:
- How the 2016 Budget Could Affect Small Business Tax Policy »
- 4 Proven Ways to Make Tax Time Less Painful »
- How to Get More from Your SR&ED Claim »
- Why Canada’s Inefficient Corporate Tax Rules Need to Be Streamlined »
MORE ON TAXATION:
- What You Need to Prepare for the CRA’s Enforcement Blitz »
- 3 Expensive Tax Traps and How to Avoid Them »
- Why You Should Stop Complaining About Your Taxes »
- What Federal Tax Changes Will Mean for Business Owners »
- Why Canadian Business Owners May Need to Rewrite Their Wills »
What are the biggest hurdles and headaches solopreneurs face when filing taxes? Let us know by commenting below.