A question about being self-employed

[gprime]

Let me start off to say.. I don't know a lick about the business world. Anywho..

I'm a student, but I also have a website where I sell some of my programs (I'm a computer engineering student). I didn't even plan to start a buiness, this whole thing started over boredom to be honest. But now I'm at a point where I have to worry about taxes, etc, and it's getting really messy, especially since I don't know jack about the business world.

I talked to an accountant of how I should handle this as a business, since it's started to generate a bit of money. He told me not to register it as a business, because then the "business" would get taxed, and then when I "pay myself" I would get taxed again. So... I didn't.

Anyways, the guy looked over my numbers.. looked over my write-offs. and told me I could expect to pay no more than $x,xxx in taxes this year. So I'm like, alright, that's not so bad. This was 5 or so months ago.

So, yesterday my dad calls up (who is friends with this accountant) and told me that the numbers came back, and that I owed over TWICE as much as the guy expected ($xx,xxx). I was confused, and asked, how could this be? "Well, he said you were taxed twice because you're self employed." (Not to mention that the guy says I owe all of this money.. TODAY.. and will be charged interest for every day late I am..).

They also briefly mentioned that $x,xxx was for my personal retirement fund (I have a retirement fund?), and the same amount was taken for the "businesses" retirement fund. I didn't understand this part at all. Is this an RRSP? But I thought RRSP's were optional...?

So is there a way for a single person business to not get totally screwed on taxes? And what the heck is this retirement fund stuff all about. Is there a way for me not to have to pay double for that too?

P.S., I would have asked my "accountant" this, but I can't get ahold of him. I seem to be only able to talk to him through my dad lately.

[deep]

This makes no sense. Taxed twice because you're self employed? BS. If you did not incorporate, then you won't be taxed twice. Whether you registered a business # (as a sole or joint proprietorship) or not, the income from the software should be (effectively) a line item on your tax return (I'll ignore minor complications like GST/PST) contributing towards your gross income. That's it.

It may be time to fire your dad's buddy.

[Spidey]

If your a sole prop. you do not get taxed twice. Ive been running a business out of my hosue for 7 years and Ive never heard of this

[gprime]

God, this makes me mad. I had to pay $300 for this "high quality service." I could have gone to one of those things in the mall and had better luck.

Well thanks everyone. I'm not really sure what I can do now, but scrounge up some money, and find someone else next year.

[PC-stuff]

My guess is the $x,xxx for the "retirement" funds (yours and the business) is CPP, CANADA PENSION PLAN which is not optional.

Since you run your own business you pay both halfs of the CPP.
(A regular employee pays half and his employer pays the other half)

If your business net income in 2005 (after deductions etc.) was something over $50K last year, your tax should be in the $10K range.
As the small bsuiness tax rate is in the 20 to 25% range

BEST to pay the estimated taxes today to avoid paying interest.
You can carefully review and file your return iin a few weeks, as self employed people have until mid June to do so. If you overpaid you'll get a refund.

[gprime]

My guess is the $x,xxx for the "retirement" funds (yours and the business) is CPP, CANADA PENSION PLAN which is not optional.

Since you run your own business you pay both halfs of the CPP.
(A regular employee pays half and his employer pays the other half)

If your business net income in 2005 (after deductions etc.) was something over $50K last year, your tax should be in the $10K range.
As the small bsuiness tax rate is in the 20 to 25% range

BEST to pay the estimated taxes today to avoid paying interest.
You can carefully review and file your return iin a few weeks, as self employed people have until mid June to do so. If you overpaid you'll get a refund.


Oh, thank you.

Actually... I just finally got a hold of the guy now, and he says that my dad misinterpreted what he said. Yes, you are right.. it was the pension plan, not retirement. Sorry about that. And apparently.. I didn't get TAXED double.. I only paid double for the pention thing. The tax was just higher than expected is all.

Yeah it was above $50K.. but not too far above that .. and I gave the guy a ton of deductions, but I'm not exactly how the deductions work. The total amount I owe is around $10K.

Now it's all starting to make a bit of sense. As long as I know I'm paying only what I should be paying, I'm fine with that.

Thanks for the information and help, PC-Stuff (and for the PM!).

EDIT:

Oh, just one more thing. This pension plan, do I ever see this money again? It might sound like a silly question.. but I don't know whether this funds OTHER peoples pensions (like a government tax) or just mine :)

EDIT #2:

Nevermind, a quick google search answered that question!

[PC-stuff]

Yes you should get it back in spades when you retire, minimum age to collect CPP is 60. And if you don't make it to retirement age, do you really care who benefits ?

[dark169]

A good sugestion would be to sit down with your accountant and set things up proper for next year NOW rather then towards the end of the year.

[emoci]

I can tell you this, my father runs a business on the side, he has registered and it actually helps to deduct certain expenses.

If you have your info and numbers try it out on UFile.
For example:

Deduct fee for website hosting and Domain
Deduct costs for computer maintenance
Deduct up to 50% of rent as a bussines expense (given you run business from home)
Half of your phone bill can become a deductible business expense
If you use a car, part of gas expenses and insurance can be deducted.
etc.


Let me start off to say.. I don't know a lick about the business world. Anywho..

I'm a student, but I also have a website where I sell some of my programs (I'm a computer engineering student). I didn't even plan to start a buiness, this whole thing started over boredom to be honest. But now I'm at a point where I have to worry about taxes, etc, and it's getting really messy, especially since I don't know jack about the business world.

I talked to an accountant of how I should handle this as a business, since it's started to generate a bit of money. He told me not to register it as a business, because then the "business" would get taxed, and then when I "pay myself" I would get taxed again. So... I didn't.

Anyways, the guy looked over my numbers.. looked over my write-offs. and told me I could expect to pay no more than $x,xxx in taxes this year. So I'm like, alright, that's not so bad. This was 5 or so months ago.

So, yesterday my dad calls up (who is friends with this accountant) and told me that the numbers came back, and that I owed over TWICE as much as the guy expected ($xx,xxx). I was confused, and asked, how could this be? "Well, he said you were taxed twice because you're self employed." (Not to mention that the guy says I owe all of this money.. TODAY.. and will be charged interest for every day late I am..).

They also briefly mentioned that $x,xxx was for my personal retirement fund (I have a retirement fund?), and the same amount was taken for the "businesses" retirement fund. I didn't understand this part at all. Is this an RRSP? But I thought RRSP's were optional...?

So is there a way for a single person business to not get totally screwed on taxes? And what the heck is this retirement fund stuff all about. Is there a way for me not to have to pay double for that too?

P.S., I would have asked my "accountant" this, but I can't get ahold of him. I seem to be only able to talk to him through my dad lately.

[mookieflookie]

the accountant probably tried to write-off more than you're allowed to

no such thing as being double taxed for u

[lochlan651]

I can tell you this, my father runs a business on the side, he has registered and it actually helps to deduct certain expenses.

If you have your info and numbers try it out on UFile.
For example:

Deduct fee for website hosting and Domain
Deduct costs for computer maintenance
Deduct up to 50% of rent as a bussines expense (given you run business from home)
Half of your phone bill can become a deductible business expense
If you use a car, part of gas expenses and insurance can be deducted.
etc.

Running a business from home lets you write off at least a portion of almost everything in your home.

I deduct a portion most everthing in my house.

meals
cable
hydro
alarm monitoring
cleaning lady
dog walker
dog food (I use them as guard dogs, so a portion of their food is useable as a business expense)
gas
mileage
lots of charities
political donations
rent
internet
and the list goes on

and because some people apparently refuse to think for themselves rather than taking everything exactly literally...........
Some other things that can greatly help with the amount of tax you pay

RESP
RRSP
Spousal RRSP

If you have a good accountant, you will hardly have to pay any tax, unless you dont donate to charity, dont give to political parties, or dont have RRSPs.
:D

[mcewen]

while the RRSP and spousal may help reduce your taxes.. it isn’t a business expense. And good luck claiming the RESP!

[lochlan651]

while the RRSP and spousal may help reduce your taxes.. it isn’t a business expense. And good luck claiming the RESP!

Well obviously.

It was included in my list as something that reduces the amount of tax that a self-employed contractor would pay.

I just assumed folks were not morons so I didnt think I needed to seperate RESP/RRSP/Spousal from the deduction list.

Nest time Ill spell it out a little better.

[mcewen]

Either way... you don't get a deduction from business or personal tax for an RESP....

[AuroraGG]

I've been self-employed for several years. For the first two years I used H&R Block because it was too much for me to work out. Both years I owed thousands in income tax. After that I read everything the government published on self-employment and taxes, I hired a book keeper to handle my taxes. This year I owed a whopping $13. Amazing - the difference when you know WHAT to write off. Here is my list of valid business write-offs.

+ All monthly Bank account fees.
+ Book keeper and accounting fees
+ Portion of Mortgage, Hydro, Phone, cable (as related to a % of the house I am using for work)
+ All medical expenses (prescriptions, gas to travel to hospita, Dr appts, parking fees etc), All Dental expenses for myself and children
+ ALL purchases made for all item I need to do my business (office supplies, postage, computer equipment etc, household cleaners, toilet paper, coffee, paper towel, dish clothes...).
+ All gas/mileage for me to go in town and pick up supplies etc.
+ All charitable donations.
+ Childcare and daycare expenses
+ All fees paid for my kids to play registered recreational sports (only worth 15% though)

If you can find a book keeper or accountant who knows his or her stuff, it's worth plunking out a few dollars for a one hour meeting just to discuss self-employment and what you can do to organize and get yourself into a good routine now -- before tax time :)

[ilim]

What kind of software you sell that sells so well?
Thanks.

[bigbug]

I've been self-employed for several years. For the first two years I used H&R Block because it was too much for me to work out. Both years I owed thousands in income tax. After that I read everything the government published on self-employment and taxes, I hired a book keeper to handle my taxes. This year I owed a whopping $13. Amazing - the difference when you know WHAT to write off. Here is my list of valid business write-offs.

+ All monthly Bank account fees.
+ Book keeper and accounting fees
+ Portion of Mortgage, Hydro, Phone, cable (as related to a % of the house I am using for work)
+ All medical expenses (prescriptions, gas to travel to hospita, Dr appts, parking fees etc), All Dental expenses for myself and children
+ ALL purchases made for all item I need to do my business (office supplies, postage, computer equipment etc, household cleaners, toilet paper, coffee, paper towel, dish clothes...).
+ All gas/mileage for me to go in town and pick up supplies etc.
+ All charitable donations.
+ Childcare and daycare expenses
+ All fees paid for my kids to play registered recreational sports (only worth 15% though)

If you can find a book keeper or accountant who knows his or her stuff, it's worth plunking out a few dollars for a one hour meeting just to discuss self-employment and what you can do to organize and get yourself into a good routine now -- before tax time :)

How could you write off your healthcare and your child's daycare expenses from your business?

[AuroraGG]

Sorry, I called them write-offs, but they are (maybe?) personal amount/exempt claims? My tax terminology sucks. I just included everything in that list that I keep receipts for and see the total written somewhere on my tax return. This would be why I would never do my own tax return :)

For childcare I know basically if you must have childcare in order to carry on or conduct your business you can include that cost at year-end.

Medical expenses - every taxpayer can claim medical based on federal provisions (eg the medical expenses are over a certain dollar amount or are a certain % of net income)


I did some searching and found two very informative links since my reply probably wont be very helpful :)

Child Care expenses
http://www.cra-arc.gc.ca/tax/individuals/topics/income-tax/return/completing/deductions/lines206-236/214/what-e.html

Details on medical expenses
http://www.taxtips.ca/filing.htm#MedicalExp

[Canucklehead]

I think for childcare, if you have both parents working then the one with the lower income can claim the childcare expenses?

BTW - agree with getting an accountant - range is $700 - $5000 for small business. But just because you have one, don't neglect the finances - there are many instances of the bookkeeper or accountant scamming the client!

[Spidey]

I think for childcare, if you have both parents working then the one with the lower income can claim the childcare expenses?

BTW - agree with getting an accountant - range is $700 - $5000 for small business. But just because you have one, don't neglect the finances - there are many instances of the bookkeeper or accountant scamming the client!


Yes, the parent with the lower income gets the childcare expeneses. I know because I make less than my wife/

I have an accountant as well, but just for taxs and the occasional questions I hav. I only pay her to do my taxes and m wifes and I's personal. Abotu $250 a year

[raptorfan]

My husband has his own business and every year files online cause he hasn't found someone to do his taxes. I'm sure there's more he could be claiming. Can anyone recommend a great accountant in T.O.?

[brendonp]

raptorfan - I'm out of T.O., so I don't have a local accountant for you, but please follow up and find one!

I run a small business that is reasonably profitable and I've always paid very little tax - usually in the neighborhood of %15-%20...

When I finally went to an accountant a few years back, my first bill was for $3000 - I do low volume/high dollar value business so I don't have that much in the way of "sales" paperwork. I was a little shocked, but she went back over my records for the previous 4 years and found me some $20000... easily paying for her work and keeping my tax to nice levels! I now seem to average about 2-3% lower then when I did it myself which more then makes up for the yearly bills - and I make more money now then I did before!

Good luck!

Brendon

[2k4accord]

For medical claims...
do you need your reciepts for claiming taxes?

[jacky27]

Running a business from home lets you write off at least a portion of almost everything in your home.

I deduct a portion most everthing in my house.

meals
cable
hydro
alarm monitoring
cleaning lady
dog walker
dog food (I use them as guard dogs, so a portion of their food is useable as a business expense)
gas
mileage
lots of charities
political donations
rent
internet
and the list goes on

and because some people apparently refuse to think for themselves rather than taking everything exactly literally...........
Some other things that can greatly help with the amount of tax you pay

RESP
RRSP
Spousal RRSP

If you have a good accountant, you will hardly have to pay any tax, unless you dont donate to charity, dont give to political parties, or dont have RRSPs.
:D


What percentage can you claim? Is it written somewhere. Do you claim 50% or 100% or 25%?

[krispy]

For those of you who are self-employed, is there a real need to incorporate yourself? Is it more beneficial come tax time?