We are a long way from tax time, but if you’re planning on starting a business, you’ll want to understand the taxes you’ll be paying from the get-go. You’ve likely been paying income tax for years, but as a small business owner, you’ll be responsible for reporting both your own earnings and any made by your employees.
Here’s what you need to know about small business taxes:
Income Tax
Income tax has become far more complicated as a business owner. The way that you report your earnings and discover how much you’ll pay depends specifically on the structure of your business.
Most small businesses start out as sole proprietorships or partnerships, as they require the least paperwork to get started. So if you’re running a one-person shop, you are required to report your income on a T1 personal income tax form. In this case, you and your business are considered one entity and your taxes can be claimed as such.
On the other hand, if you’ve incorporated your business, you can expect to report your income on a T2 corporate income tax return instead. When you take the incorporated route, you have identified your business as a separate entity from yourself and are required to submit income tax returns independently as well.
Payroll Deductions
Now that you understand how to claim your own income as a business owner, you are also required to calculate and report income tax and other payroll deductions for your employees if you have them.
You are now responsible for understanding how much income tax, Employment Insurance (EI), and the Canada Pension Plan (CPP) you will need to deduct in order to stay compliant. If you’re unsure exactly how much you need to deduct from their paycheques, you can use a payroll deductions calculator.
You became an entrepreneur because you have a passion for your business, but that doesn’t necessarily mean you have a passion for reporting income tax. Leave those complicated concerns to the team at CDC Bookkeeping. Let us take care of your books so you can take care of your business.
For more information on our bookkeeping services, visit us online or give us a call at 306-667-2178 to schedule your free consultation.
