So, it’s your first year running a small business. You know you’ll be responsible for paying taxes eventually. But which ones? And how much will you pay? And what can you write off?
If you have questions, we don’t blame you. Taxes can be a mystery for many small businesses that are just starting out.
The great news is, if you’re asking these questions, so are other business owners. That’s why we’ve put together this list of common tax-related questions for small business owners (and the answers to them. We want to help you, after all).
Which taxes am I responsible for paying as a small business owner?
The answer is… well, there is no one answer. Thankfully, we’ve put together a handy guide that outlines everything you need to know about your first tax season, including which taxes apply to which businesses.
Overall, you will be paying some combination of provincial, federal, or harmonized sales tax (depending on where you live) in addition to income tax. If you have employees working for you, you’ll be remitting payroll taxes as well. If you sell imported goods, or if you export your products to another country, excise taxes and tariffs may also apply.
How much money do I need to set aside for taxes?
The truth is, this amount will be different for everyone. It also depends on the kind of business you own, how much revenue you’re bringing in, and what types of goods or services you are selling.
This helpful recap from RBC outlines some key considerations to take into account, like understanding the payment schedule and filing taxes based on what you bill for the year (rather than what you collect). And don’t forget about your CPP/QPP obligations!
What can I write off?
You may have heard that if you work from home or use your car for work, there are a number of expenses you can write off, like your Internet bills, hydro, car expenses, and business travel. This article provides an excellent overview of the types of expenses that are eligible to write off.
As this article from RBC’s website notes, though, people tend to either be too conservative about which expenses they write off, or they go the other way and “think everything is deductible.”
The answer, of course, lies between the two extremes, and, as we’ve already mentioned a few times above, really depends on your business. It’s a great idea to talk to a financial advisor about which kinds of receipts you should be saving throughout the year. Speaking of which...
Do I really need to save all my receipts?
It can’t hurt! This article uses a good example, which we’ll paraphrase here: Say you have a $50 charge from a gas station that shows up on your credit card statement. Without a receipt, there’s no way for you to show that your entire purchase was just for gas.
A good rule of thumb is, if it’s an expense that’s relevant to your business and isn’t a monthly recurring bill that’s processed automatically like internet or your phone bill, you should save the receipt.
Have more questions? Talk to an expert
Hopefully, you’re feeling more confident about tax season after reading through these answers. If you’re still feeling unsure, though, you don’t have to go it alone! It’s a great idea to make an appointment with a financial advisor who can walk you through the considerations that apply to your unique business.
The information in this article is provided solely for informational purposes and is not intended to be legal, business or other professional advice or an endorsement of any of the websites or services listed.
Article filed under:Money and Finance