​​Greetings! A reminder for sole proprietors that your tax deadline is this coming Monday, June 17, 2024. 

Anyhow, this is a super late newsletter. I try to make a weekly post on social media, so you can follow me there to get more tax and tips. See all the links below my signature. Thank you for reading. :)

Here are questions I received from sole proprietors (or self-employed).

1. Why do I owe so much taxes? I thought you said my taxes are zero?     
A: Well, yes, your federal and provincial taxes are $0.00, but you have to pay CPP (Canada Pension Plan) premium, which is a double portion - as an employer and as an employee.      


2. Do I have to pay EI (Employment Insurance) as a self-employed?      
A: No, you don’t have to pay EI because as a self-employed, you are responsible for finding your own work. However, you do have an option to contribute to EI so you can get special benefits such as maternity, parental, sickness, family caregiver and compassionate care. See here for more reading: EI Benefits for Self-Employed People


3. I thought you said that I have a refund, but why do I have GST (Goods and Services Tax) owing?     
A: As a GST registrant, you need to file a GST return, which is different from your personal income tax return (T1). It is possible to have a refund on your personal income tax return and have a balance owing on your GST return. As a GST registrant, you may have collected GST from your customers on behalf of the government. It is now time to remit that tax money back to the government. It was never your revenue, you were collecting it on behalf of the government.     


4. How much should I charge now that I work for myself?
A: Let’s start simple. 
Assume:
- I earn $80,000 per year. 
- I get an extra 4% pay-in-lieu of vacation.
- I get 5 sick days per year.
- There are no other benefits. 
- Now that I’m self-employed, I will pay the employer-portion of CPP (Canada Pension Plan) premium.

Let’s do the calculation. 
- $80,000 per year = $80,000/ 52 weeks/ 5 days per week/ 8 hours per day = $38.46/hour
- 4% in-lieu = 4% x $80,000 = $3,200
- 5 sick days = 5 x 8 hours/day x $38.46/hour = $1,538.46
- CPP (employer portion) = $3,867.50
Total = 80,000 + 3,200 + 1,539 + 3,868 = $88,607

Hourly rate = $88,607/ 52 weeks/ 5 days per week/ 8 hours per day = $42.60/hour

This is a simplified calculation. It doesn’t take into account any benefits such as health, dental, life insurance, pension, etc. It also doesn’t consider extra bookkeeping work, higher tax preparation cost, out-of-pocket expenses, etc. Further, the calculation does not include materials, inventory, tools, supplies, etc.


That's all for June. Have a great rest of the month!

Happy Mother's Day to all moms out there! Hope you are all doing well. 

2024 Tax Season flew-by fast, like a whirlwind.  I want to begin by thanking everyone who trusted me with your tax returns. I am grateful for the opportunity! :)

Let's get to this month's tax and money tips. I want to share frequently asked questions this tax season. Every year there seems to be a theme. I wish I started journaling  frequently asked questions every tax season. Anyhow, here are some frequently asked questions from this tax season.


 1. Can you file my taxes by April 30th? It's the deadline, correct? 
Answer: 
Yes, the tax deadline was April 30th, but remember that if you or your spouse (or common-law partner) are a sole proprietor, you have an automatic "extension." You have until June 17, 2024 to file your 2023 tax return. However, balance owing should have been paid by April 30th to avoid interest. To overestimate your balance owing, take your gross revenue and multiply by 30%. Remit that portion to CRA as your tax for 2023 tax return. If you overpay, it will be returned to you as a refund. If you underpay, you can pay the difference after  you file your tax return. 
PS: If you missed April 30th payment, you can still make an estimated payment now and file your 2023 taxes later.


 2a. Can I still claim the $2/day work from home? 
Answer: 
During Covid time, CRA allowed a simplified $2/day claim for everyone who worked from home. No receipt is needed. For the 2023 tax return, it is back to the old detailed method where one would need a T2200 form from his/her employer and keep all receipts. In general, if you are renting, you would be able to claim a larger amount than those who own their home. Why? Because rent is included as part of home office expenses whereas property taxes and mortgage interest are not, unless you are a commissioned employee. Due to the amount of work of collecting and keeping a record of expenses such as BC Hydro statements, Fortis BC statements, etc., some people chose to forego this claim because the additional refund did not justify their time and/or my additional fee. Sometimes you may not want to claim all the deductions you are entitled to.

 2b. Why should I have a car log? None of my co-workers keep a log book. 
Answer: 
If you are claiming car expenses as part of your employment expenses (must have T2200 form from your employer), you MUST have a car log book that shows:
- date of travel,
- where you are traveling to,
- whom you met,
- purpose of travel, and
- km driven.
In addition, you need to also record km driven for business and km driven for the whole year. Further, you need to have all your receipts in your record such as fuel, car maintenance, parking, etc. Employment expenses is a topic commonly re-assessed by CRA, so you must be ready with all your records in case CRA asks for it.


 3. What are my options if I can't afford your tax preparation fee? 
Answer: 
If you are a new entrepreneur and do not have a budget to hire someone to do your tax return, I suggest investing some time learning about allowable business expenses and when to register for and charge GST (or if you need to register for GST). Then use Turbo Tax for your tax return. Purchase their Assist & Review program - you pay one time and you get unlimited reviews of your tax return. I think this may be the most economical way for new entrepreneurs to complete their tax returns. Please note that I am not affiliated with Turbo Tax. I did work for them in the past and I think they may be the only company that offers unlimited review for those who DIY their tax returns.

Here are websites for new entrepreneurs to read.
- Business expenses you can deduct
- When to register and start charging GST/HST
- Turbo Tax Assist and Review program


That's all for May. Have a great rest of the month!