In Canada, there are a variety of different benefits for the self employed. Here you will find a detailed list of considerations for the self employed.
Who is Considered Self Employed?
Any person that operates a business is considered self employed. The date that the business was first started is important when it comes to filing taxes on behalf of the business. The costs that are incurred before the business was started are not eligible to be deducted. That is, unless the costs were directly related to opening the business.
Reporting Expenses and Income for the Business
Anyone that is self employed is able to file their own income and expenses for their business by using the Form T2125. IF a person owns more than one business, they will need to complete separate forms. If they fail to report their business income, there could be penalties down the road. Also, making false statements can result in penalties.
If the business is owned by two or more partners, the partners will be responsible for filing their own separate returns that detail their portion of the income and losses of the business. If the business has fewer than 5 partners, then they will not be required to file a PIR, or partnership information return.
Any expenses that are incurred in order to operate the business may be deducted when tax time rolls around. Also, GST and HST incurred can be deducted. It is important to remember that any GST/HST paid on the business expenses are considered to be a tax credit. This amount will need to be subtracted from the business expenses on the Form T2125. Personal expenses, however, are not deductible.
Self employed Canadians are required to keep a record of their income and their expenses. They also have to include their deposit slips and their bank statements with this record. There are two different accounting methods that can be used:
First is the accrual method. It can be used to report the income in the same period in which it was earned, even if it was not received during that period. Expenses that are incurred in that period can also be reported, even if they have not already been paid.
Then, there is the cash method. This is the method often used by commissioned sales representatives. This method can be used to report income only in the year it was actually received and the expenses only in the year it was paid out.