How to File Your Income Tax as a Sole Proprietor
Running your own business changes your life in so many ways, why would doing your income tax be any different?
Whether this is your first year of filing your taxes as a business or you’re an old hand, here’s a refresher on the three main ways being a sole proprietor changes the process of doing and filing your income tax.
1) As a sole proprietor, you have a different income tax filing deadline.
Self-employed people such as sole proprietors have until June 15th to file their income tax. This applies to spouses too, so if your spouse or common-law partner is self-employed, you also have until June 15th to file.
However, note that the payment due date for any balances owing on your income tax was April 30th.
(Are you unsure about whether the Canada Revenue Agency (CRA) would consider you to have business income or not? See You May Have Business Income and Not Even Know It!)
2) You report your business income as well as your personal income on your T1 income tax return.
You don’t need a separate or different tax return to report your business income; you report your worldwide total income on the T1 general income tax return.
So if you have several different businesses, or employment income as well as business income, or investment or pension income for that matter, it all gets reported on the same tax return.
Business income is reported on Form T2125, which is part of the T1 return.
If you have more than one business, you will need to use a separate T2125 form for each.
3) All your business tax deductions are reported on Form T2125.
One of the great things about running your own business is that you have a much larger pool of potential tax deductions, from the cost of a new printer cartridge in your office through Capital Cost Allowance.
Here’s a list of common business deductions for a small business. All of your business expenses and deductions will be recorded on Form T2125 and then subtracted from your business income, resulting in your net business income or loss.
(Did you know that you can claim some business expenses before your business even opens? Learn more here.)
Which TurboTax Is Best for Your Business?
While all TurboTax products allow you to report self-employment income, TurboTax Home & Business is the best choice for doing and filing your income tax if you’re a sole proprietor, member of a partnership, or otherwise self-employed.
It has an enhanced business interview that offers step-by-step instructions to help you complete the self-employment business forms and additional help to guide you through the self-employment section of the tax return.
(And it’s great for entering investments and rental property, too!)
How to Declare Business Income
If you have business income, you have to declare it on your income tax return. (And note that business income from other countries counts, too; it’s your worldwide income that you must declare on your income tax, not just whatever income you’ve made in Canada.)
How you declare your business income depends on the structure of your business.
Sole Proprietorships and Partnerships
If you are operating a sole proprietorship or a partnership, you will be declaring your business income on your T1 individual income tax return by completing Form T2125 – Statement of Business or Professional Activities, which is part of the T1 income tax package.
As mentioned in a previous post, You May Have Business Income and Not Even Know It!, if you have not officially set up a business, you will be assumed to be a sole proprietorship using your own legal name and therefore will be using Form T2125 to declare your business income as well.
If you have more than one business, you will have to fill out a T2125 form for each.
Corporations
If your business is incorporated, you will be declaring your business income on the T2 corporate income tax return, as well as completing a T1 tax return as an individual. You may find this Canadian Corporate Tax Guide useful.
Find Your Industry Code
No matter what form of business you have chosen as your business’s legal structure, you will need to know the Industry Code that your business falls under.
For instance, the industry code for Internet Shopping (including Internet selling), is 454111.
Use the appendix of the Business and Professional Income Guide (Canada Revenue Agency) to find out what your business’s industry code is, if you don’t already know it so you will be able to complete the Identification section of the tax return.
TurboTax Can Help
Whether your small business is incorporated or not, TurboTax can make completing and filing your tax return easier. TurboTax Home & Business (available as downloadable software and in an online version) is designed for sole proprietors and partnerships, while TurboTax Business Incorporated (available as downloadable software only) is for Canadian corporations.
Both tax solutions provide step-by-step guidance for completing your income tax return and can help you find all the tax deductions and credits you’re eligible for. And both are Canada Revenue Agency approved, so you can NETFILE your return(s) from within the program.
Unincorporated Business? Don’t Miss the June 15th Tax Deadline
If you were running an unincorporated business in Canada, (a sole proprietorship or partnership), when April 30th rolled around you probably just shrugged your shoulders and mentally congratulated yourself on having an extra month and a half to get your income tax return filed.
But now that deadline is fast approaching.
Sole proprietors, partners, self-employed – basically anyone engaged in a business that is not an incorporated business – have to file their income tax by June 15th, 2013.
Normally, the due date for unincorporated businesses to file their income tax would be June 15th, but when a tax due date falls on a Saturday, a Sunday, or a holiday recognized by the Canada Revenue Agency, (CRA), they consider your return to have been filed on time if they receive it on the next business day, which in this case, because June 15th is a Saturday, gives you until Monday, June 17th to get your income tax filed.
Your Filing Options
This year, for the first time, the CRA did not send out paper income tax packages to everyone. (See Goodbye Paper Tax Return!)
You can still pick up paper T1 income tax returns from income tax centers and post offices, fill them out and mail them in if you wish.
The fast and easy option, though, is to NETFILE your tax return. As you see in Taking the Fear out of Tax Filing – By Using TurboTax and NETFILE, when you’re using CRA certified tax software such as TurboTax, sending your completed tax return directly to the CRA is quick and secure – and the fastest way to get your tax refund (in about eight days, according to the CRA).
You may also take your completed T1 tax return directly to a Canada Revenue Agency tax centre.
(Note that TELEFILE has been discontinued this year.)
Tax Tip for Sole Proprietors: Don’t forget to claim the Tradesperson Tools Deduction if you’re eligible.
Remember, though, that the June 15th deadline applies only to filing your income tax.
Even if you are operating an unincorporated Canadian business, you still had to pay any outstanding balance owing on your income tax by April 30th.
What If You Discover You Owe Tax You Didn’t Know About?
First of all, you’ll want to pay off your outstanding balance as soon as possible. If you owe money, you will be charged interest every day after taxes were due, (a late-filing penalty of five percent of your balance owing plus one percent of your balance owing for each month your tax return is late for a maximum of 12 months), so the sooner you get it paid, the less expensive it will be for you.
If you can’t pay off what you owe, contact the Canada Revenue Agency to work out a payment plan.
Put TurboTax to Work for You
Feeling overwhelmed and wondering how you’re possibly going to fit in getting your income tax done by June 15th? Speed up the process by putting TurboTax to work for you.
TurboTax Home & Business simplifies completing your business income tax by using an enhanced business interview that guides you through the self-employment section of the tax return – and then lets you NETFILE your completed return from directly within the program.
Best of all, using TurboTax will ensure that you get all the business tax deductions you’re entitled to. And if the thought of being audited worries you, add the security of our Audit Defence service.
When June 15th arrives, you’ll be able to just shrug your shoulders and congratulate yourself on having your tax return already done and filed.
Money-Saving Tips for Moms (Happy Mother’s Day!)
When you looked down upon your newborn bundle of joy, taxes were probably one of the furthest things from your mind.
The beauty of your new baby’s fingers, what you might name her, how soon you might be able to take your new child home and start your life as a family… Taxes don’t seem to be appearing on the list any time soon, do they?
But there are tax benefits related to being a mother, our government’s way of trying to help out with life’s most important job.
In honor of Mother’s Day, here are five tax benefits for Canadian Moms.
1) The Canada Child Tax Benefit
Designed to help with the cost of raising children under the age of 18, this non-taxable benefit is distributed as monthly payments.
Depending on where your child is born in Canada, you either register your child through an Automated Benefits Application service when your child is born or through completing the Canada Child Benefits Application.
The amount of Canada Child Tax Benefit you receive depends on your family net income and whether or not you also qualify for the National Child Benefit Supplement and/or the Child Disability Benefit. Learn more about all three of these benefits in How to Make Sure You Get the Canada Child Tax Benefit.
(You may also be eligible for The Universal Child Care Benefit, a taxable benefit which provides payments of $100 per month per child under age 6. You have to apply for them separately. See this page of the Canada Revenue Agency website.)
2) Child Care Expenses
The government recognizes that not every Mom (or Dad!) gets to stay home and devote themselves to child care full-time. If you have to pay for your child to attend nursery school, a daycare centre, day camp or pay someone else to look after your child while you work or attend school, you can deduct child-care expenses on your income tax. (Keep your receipts!)
3) Medical Expenses
Kids are kids. They get measles, the flu or whatever else is making the rounds at school. They have (hopefully minor) accidents that need to be treated. One of them may need crutches or braces on their teeth at some point. When a kiss doesn’t make it better and you incur medical expenses that are not already covered by your medical plan, you might be able to claim the expenses on your income tax. See What Medical Expenses Can I Deduct & How Do I Claim Them?
4) Fitness and Art Tax Credits
Karate. Dance lessons. Hockey. Enrolling kids in activities and driving them back and forth is a rite of passage for many Moms. And the cost of all those different lessons and activities can really wallop a Mom’s pocketbook. Now there’s both a Children’s Fitness Tax Credit and a Children’s Arts Tax Credit to help out a bit. (You’ll need receipts for these expenses, too.)
5) The Public Transit Tax Credit
And if your you and/or your child takes the bus or the subway to get around town, you may be able to claim the Public Tax Amount on your income tax.
Happy Mother’s Day!
Presumably you have better things to do this Mother’s Day than sit around and ponder how being a mother affects your income tax. But still, it’s nice to know that being a Mom does have some tax advantages.
Your Income Tax Is Filed! Now What?
Don’t you heave a sigh of relief when your income tax is done and filed for the year? But practically as soon as you’re done sighing, there’s the letdown. Now what? What can you possibly do now that you’re not hunting through the glove box of your car or ransacking rooms in your home looking for missing tax receipts?
Here are eight suggestions to help you get over tax season and move on.
1) Look at stuff on the Internet that’s not related to income tax deductions. Just because you can.
2) Run through the grass in your bare feet yelling “Woohoo! Woohoo!” (Warning: this is only suitable if you actually have soft green grass showing where you live and it’s warm enough to take your boots off.)
3) Prepare a special “Tax Freedom” barbecue. Invite friends to share. It’s not true that you don’t have to think about income tax until next year, but it’s a nice fantasy.
4) Use your tax refund to go somewhere nice. Book a Mediterranean cruise. Or an Alaskan one. Visit the Mexican Riviera. Didn’t get that much of a refund? Take a nice Staycation, dining at a local restaurant you’ve always wanted to try or visiting a local attraction.
5) Use your tax refund to do something new. What is it that you’ve been putting off? Learning Spanish? Taking up kayaking? Taking a cooking class? Now is the time!
6) Use your tax refund to get more tax deductions next year. Make a donation to a favourite charity. Enroll one of more of your children in arts or fitness programs that will qualify for the Children’s Arts Credit or the Children’s Fitness Credit. Put some money into an RRSP or a Tax-Free Savings Account. (Wondering which of these options is best for you? See What’s Best? A TFSA or an RRSP?)
7) Didn’t get a refund? Figure out how you’re going to get one next year. (TurboTax has lots of tax tips and advice to help.)
8) Get outside! It’s wholesome, it’s Canadian and it’s free. And now that tax season is officially over, there’s no stopping summer!
If you still haven’t filed your income tax, though, you’re going to have to put these things off a bit until you get the job done. The Canada Revenue Agency is still open for business and we’re still here to help. TurboTax’s Personal Profiling Feature Makes Doing Your Taxes Easy and you can NETFILE your 2012 tax return until November 30th.
(The sooner you get it done, the better though, as whatever tax-related benefits you are eligible for will be delayed and there are late-filing penalties for people with balances owing that are not paid by or on April 30th, 2012 (See 3 Good Reasons for Filing Your Income Tax by the April 30th Deadline).
Haven’t Filed Your Taxes Yet? Here is What You Need to Know
The April 30th tax filing deadline has now passed, however it is not too late to file. Regardless of whether you are going to get a refund or have a balance owing, it is always a good idea to file sooner rather than later.
TurboTax and NETFILE Are Still Available
You’ll still be able to use TurboTax to get your income tax done the easy way; when you use TurboTax, you get guided through every step of the tax completion process and get to quickly NETFILE your return from directly within the program. Learn why NETFILE is the best way to file your income tax.
Whether you use TurboTax or not, you’ll still be able to NETFILE your 2012 tax return until November 30th. (Note that access to NETFILE has changed; you no longer need a special access code from the Canada Revenue Agency to use it.)
So The Deadline Doesn’t Matter Then?
It might. The later you file your 2012 income tax return, the later your monthly benefit payments will arrive, because the net income shown on your tax return is used as a factor to determine your eligibility for various benefit programs.
So if you have received or hope to receive payments such as Canada child tax benefit payments old age security benefit payments, and/or GST/HST credits, you’ll want to get your income tax done and filed as soon as possible.
If you have a balance owing, you will be subject to late filing penalties and interest. The Canada Revenue Agency offers a number of different payment options. If you have a large balance owing, you can ease the burden by paying through installments.
Help Getting Started
Have you been putting off doing your income tax because you think you just don’t have to the time to get it done? TurboTax makes doing your income tax as fast and easy as possible.
But the process will be even speedier if you have all the information and tax slips you need by your side when you sit down to use it. This handy Tax Preparation Checklist will ensure that you have every piece of information you need to breeze through it.
Because the sooner you get that tax return done and filed, the sooner that refund and those tax benefit payments can arrive!
You Can Still Get Your Taxes In On Time With TurboTax
Still haven’t filed your income tax for 2012?
The income tax deadline is tomorrow and you don’t want to file your tax return late.
But work, looking after the kids and getting all the chores done isn’t leaving you much time for figuring out your income tax and you sure don’t have time to be shopping for tax software.
So don’t.
Instead do your income tax the easy way.
Just go to the TurboTax website, pick the online edition that’s right for you and start getting it done.
You don’t have to drive anywhere to pick up a software package or even spend time downloading anything to your computer; it doesn’t matter if you have a Mac or a PC; all you need to do to get started is click the big ‘Start for Free’ button for the Online edition you’ve chosen:
- Standard online – great for individuals, couples and families
- Premier online – ideal for investors and property owners
- Home & Business online – made for consultants and contractors
- TurboTax Student online – designed for optimizing your student deductions
You ‘Start for Free’ because you don’t pay to use TurboTax online until you go to NETFILE your tax return. And TurboTax is completely free for Canadian taxpayers with only income to declare and students with annual household incomes of less than $20,000.
Being able to just plunge in and start getting your income tax done is only one way TurboTax expedites the process of getting your tax return done and filed. Here are five more ways:
1) TurboTax uses an Easy-Step Interview process that asks you questions in plain language to guide you through the process of completing your tax return.
2) TurboTax does the figuring for you in many cases and places the results where they need to be on your tax return.
3) TurboTax has a review process that ensures that you don’t miss out on any of the 400 plus tax deductions you might be eligible for.
4) TurboTax is NETFILE certified by the Canada Revenue Agency and lets you NETFILE from directly within the program so you can get your completed income tax return filed with just a click. Learn more about using NETFILE.
5) And TurboTax guarantees that you will get the biggest refund you could possibly get (or pay the lowest amount possible.
So use TurboTax to do and file your tax return online and get it in on time to avoid tax penalties and get your refund as fast as possible.
Taxes vs Hockey: The Ultimate Face-off Looms on April 30th
Fellow Canadians, the ultimate face-off is looming. On April 30th, for the first time in history, the NHL playoffs start on the same day as the tax filing deadline.
Here is an important message (actually, a plea) from your hockey-loving friends at TurboTax.
Live Help & Audit Defence: TurboTax Gives You Extra Peace of Mind
Do you worry that you’ll make some mistake on your income tax that will affect the size of your refund or even cause the Canada Revenue Agency to audit you?
We understand your worries; taxes are serious business and mistakes can follow you around and complicate your life for years.
But that’s one reason that TurboTax has become Canada’s #1 best-selling software – we go out of our way to take the worry out of the income tax preparation and filing process.
Our three customer guarantees are one way we provide you with peace of mind; when you use TurboTax, we guarantee that:
- You will get the maximum refund you could possibly get;
- all the calculations on your income tax return will be 100% accurate;
- you will be 100% satisfied with our product.
But we even go beyond that by providing you with expert professional tax advice during and after the process of completing and filing your tax return through our Live Help and Audit Defence services.
Live Help
When you’re using TurboTax to complete your income tax return, help is never more than a click away; you can immediately connect with experts and other TurboTax customers in the TurboTax Live Community and/or use the TurboTax Help Center from directly within TurboTax. Learn more about how TurboTax provides you with the tax help you need.
But sometimes even though you read an answer to a tax question, you’re still not sure how that applies to your tax situation.
TurboTax’s Live Help lets you speak with a real tax professional one-on-one to get expert advice (in either English or French).
The service is available by phone or chat seven days a week until May 3rd from 7 a.m. until 1 a.m. EST and is provided free to Premier and Home & Business customers. (Live Tax is available to users of other editions of TurboTax for a $15 fee.)
Audit Defence
And if you’re anxious about being audited, you’ll want to take advantage of our Audit Defence service which provides you with full-service representation by a tax specialist throughout the audit process.
What Medical Expenses Can I Deduct & How Do I Claim Them?
From having a prescription filled through needing to be taken by ambulance to a hospital, everyone has medical expenses. Fortunately, a lot of different medical expenses can be claimed on your income tax as a tax deduction – and even more fortunately, the medical expenses of other members of your family can be claimed, too.
You may not want to claim medical expenses on your income tax return, though. Because of the way medical expenses claims are calculated, you’ll get the biggest bang for your tax buck if the spouse with the lowest income claims all the medical expenses on his or her return.
Let’s have a look at the details.
Whose Medical Expenses You Can Claim
If you are single and have no dependents, only yours.
If, however, you have a family, you can claim the medical expenses you paid for your spouse or common-law partner and those of any dependent children.
If you are claiming medical expenses as or for a person with a disability, you will want to be sure the Canada Revenue Agency has a valid T2201 Form Disability Tax Credit Certificate before you submit your return.
How Much of Your Medical Expenses You Can Claim
The answer to this depends on your net income. For the federal medical expenses tax credit on Line 330 of your income tax return, you will enter the total amount of your claimable medical expenses and then subtract the lesser of 3% of your net income (line 236) or $2,109 (in 2012) – the result being how much of your medical expenses you can actually claim.
(You will also claim the appropriate provincial or territorial non-refundable tax credit on line 5868 of your provincial or territorial Form 428.)
If you also have incurred medical expenses for dependent relatives who are 18 or older, you will need to claim these separately on Line 331 of your income tax return. These are calculated exactly the same way as your medical expenses on Line 330 except that you need to do a separate calculation for each dependent.
Your Medical Expenses Year Doesn’t Have to Match the Calendar Year
One helpful thing about claiming medical expenses that some people don’t realize is that while you do claim twelve months of medical expenses at a time on your income tax return, those twelve months don’t have to run from January through December. In fact, you can claim eligible medical expenses paid in any 12-month period ending in 2012 and not claimed for 2011 – which is handy if you had some large medical expense that you wouldn’t be able to claim if you were limited to following the calendar year.
What Medical Expenses Can You Claim?
If you read the entire list of allowable medical expenses that the Canada Revenue Agency provides, you’ll probably be surprised at what all is allowed to be claimed.
Here are just five that may have never crossed your mind:
- Air conditioner - $1,000 or 50% of the amount paid for the air conditioner, whichever is less, for a person with a severe chronic ailment, disease, or disorder – prescription required.
- Certificates – the amount paid to a medical practitioner for completing and providing additional information in regard to Form T2201 and other certificates.
- Orthopaedic shoes, boots, and inserts – prescription required.
- Premiums paid to private health services plans including medical, dental, and hospitalization plans.
- Talking textbooks in connection with enrolment at a secondary school in Canada or a designated educational institution for a person who has a perceptual disability. A medical practitioner must certify in writing that the expense is necessary.
Claim Your Medical Expenses the Easy Way With TurboTax
Reading through all the material linked above and the Canada Revenue Agency’s RC4064 - Medical and Disability – Related Information is one way to learn how to claim your medical expenses. Another is just to use TurboTax.
TurboTax simplifies the process of claiming your medical expenses by providing answers to common medical expense questions before and during the process of entering your medical receipts. It’s your expert guide to making the most of your medical expenses claim. Learn more here.
