Tax Articles
Self-Employed? Try These Tax Tips
Business TImes
Colin Wong, CA
Those who are self-employed have the advantage over employees of more tax planning flexibility. As the income tax filing deadline approaches, this is the perfect time to s-t-r-e-t-c-h those abilities – and r-e-d-u-c-e your taxes. Use the following list to ensure that you utilize every advantage available.
Claim all expenses related to maintaining your office, including:
• Utilities;
• Repairs and maintenance;
• Telephone and Internet:
• Supplies;
• Insurance; and
• Rent (if you rent your home) or property taxes and mortgage interest.
Claim all expenses involved in operating your business which would include:
• Interest and fees for business loans;
• Insurance for equipment, general business or business interruption;
• Management and administration expenses;
• Bank charges:
• Legal, accounting and consulting fees;
• Advertising/promotion; and
• Expenses associated with attending up to two conventions/conferences in 2005.
Business loan
If you took out a business loan and were required to purchase a life insurance policy and assign it to the leader as security for the loan, you can deduct the cost of the premiums.
Plan your RRSP deduction. Before claiming your RRSP contribution this year, consider whether you expect to be in a significantly higher tax bracket within the next year or two. If so, it may make more sense to delay the deduction so you can save more taxes next year or the following year.
Claim the portion of the following automobile expenses related to business use:
• License and registration fees;
• Insurance;
• Maintenance and repair;
• Fuel, oil and lubricants;
• Washes;
• Parking fees;
• Interest expense, to a limit of $300 per month, if you take out a loan to purchase the vehicle;
• Capital cost allowance on the first $30,000 of the cost of the auto (plus GST and PST), if you purchased the vehicle; or
• Lease payments for the first $30,000 (plus GST and PST) of the cost of the auto, if you lease the vehicle.
If you use your vehicle only for business, you may fully deduct expenses. However, when you use your car for both business and personal purposes, you need to record all of your driving mileage. For the business portion, divide the number of kilometres driven for business purposes by total kilometres driven to determine the ratio for deducting expenses.
If you travel for business, you may deduct:
• Transportation and accommodation expenses; and
• 50 per cent of the cost of meals, beverages and entertainment.
Capital cost allowance
Claim the relevant capital cost allowance (CCA) for any capital equipment that you purchased last year, such as a computer, phone, copier or furniture.
If your spouse or children work for your business, deduct their salaries (up to a reasonable amount) as a business expense.
If you made charitable donations through your business in 2005, you can claim federal and provincial tax credits. For the first $200, the federal tax credit is 6.05 per cent; for donations above $200, the federl credit is 29 per cent and the Ontario credit is 11.6 per cent.
Deduct heath/dental insurance premiums if you have a private health services plan. When your business has no full-time employees other than you, you ca deduct up to $1,500 each for yourself, your spouse and other family members who are 18 years of age or older. You can also deduct $750 each for any other members of your household under the age of 18.
If your business incurred a loss in 2005, you can apply this loss against other sources of income, including investment income, capital gains or employment income - and you can carry any unutilized loss back up to three years.
Review your tax returns from prior years to identify any unused tax deductions or credits that you may be able to apply this year.
Make your quarterly income tax instalments payments on time to avoid interest penalties. This includes any outstanding taxes due by the April 20th tax payment deadline (although the filing deadline is June 15th).
Feel your tax burden getting lighter already? This might be only the beginning – talk with your accountant about other ways to flex your tax-saving abilities.
Colin Wong, CA, is a tax partner of BDO Dunwoody LLP (www.bdo.ca). One of Canada’s leading accounting and advisory firms, BDO helps entrepreneurs and family businesses succeed. If you have questions about this article or would like to receive BDO’s Tax Factor newsletter, contact Colin in the Mississauga office at (905)270-7700 or cwong@bdo.ca.
