Small business tax accountant / writeoff advice?

[sabad66]

Originally posted by msommers

Being incorporated, you can pay yourself personal income of your choosing, to a reasonable degree, which gets included in your overall personal income for the year. However, if there is money left in the account, this gets taxed at the business rate (14% IIRC). This is why people prefer to leave money in there over time, provided them give themselves enough money to live off of for the year!

If the "leftover" profit is being taxed at 14%, wouldn't it be better to pay yourself as much as you can so that there isn't much left to tax?

[Mitsu3000gt]

After some research it seems it can cost up to $1000+ for simple small business taxes, you might be better off doing it yourself or not at all depending on your profits. Unless you are getting enormous benefits from the write-offs, paying 20% of your income or whatever it is for someone to do taxes just didn't seem worth it to me. If you can claim a few "safe" things without paying anyone, that is probably the best compromise.

[carson blocks]

Originally posted by TimG
I was just about to post a similar question in another thread - good thing i searched first

i'm also thinking of taking my hobby business from hobby to legit as it's starting to pick up more than i expected.

My main questions for you guys who might have gone thru this are:

I'm an incorporated contractor, I'll tell you what I'd do below, but my answers are in no way what CRA or the city might say if asked the same questions.

Originally posted by TimG

1) my hobby would be considered "light manufacturing." the lightest of the light. personally i don't even think it should be considered this, but that's the closest option on the city web site. What is it like to get your residential property rezoned for something like this? should this be step 1 before anything else happens?

If it's a hobby business and you won't be renovating to accomodate it or having traffic to your house, why complicate life by involving the city?

Originally posted by TimG

2) i use part of my basement and garage for this. How does it work for claiming a portion of the house/mortgage for the business?

Keep life simple, set a fair rent amount that's low enough to fly under the radar with CRA and charge yourself rent on the space. Don't try to screw the CRA, be able to defend your numbers.
I have a fully equipped room set aside for solely my office space and percentage wise it's actually a big chunk of my tiny 800sqft house and I think I charge $300/mo rent to my corp. My corps income more than justifies this minor expense. If you're making 10k a year on your hobby though you might want to think carefully about how much rent you can justify before the percentage will raise red flags with an auditor.

Originally posted by TimG

3) is it better to be in a SP or incorporate? i think liability is very small. if you incorporate do you need to set up independent bank accounts, etc?

If you're at all serious about it or will have any number of transactions, a separate bank account will keep your bookkeeper from strangling you. To me, the big benefits of incorporating are being able to keep money in the business, and more insulation from lawsuits as the corp is a separate legal entity.

Originally posted by TimG
4) if you're only making around 10k or less per year, is it worth all the headaches?

Probably not worth it to incorporate unless you're building and selling something that someone will sue you over. I'm incorporated and have pretty simple books. My bookkeeping is around $400/yr and my accountant around $1200.

[TimG]

If it's a hobby business and you won't be renovating to accomodate it or having traffic to your house, why complicate life by involving the city?

because to get a business license you need to disclose the type of business to the city...


thanks for the answers.

who do i need to talk do about all of the details? an accountant? city? province? registry?

[msommers]

Originally posted by sabad66

If the "leftover" profit is being taxed at 14%, wouldn't it be better to pay yourself as much as you can so that there isn't much left to tax?

No and here's why: you're trying to minimize you're overall tax paid to the government in the long term. So when you're retired/not paying yourself as much, you can slowly "pay" yourself more later in life with a fairly even tax rate. Otherwise, you're getting dinged at the max tax rate every year (assuming of course you're making that much).

There is stuff with dividends too but I can't speak to the specifics as I honestly don't know. Also setting up trust funds...

[carson blocks]

Originally posted by TimG


because to get a business license you need to disclose the type of business to the city...

I'm not advocating it, but you'd be surprised how many home businesses skip the city business license and the associated BS.

Originally posted by TimG

who do i need to talk do about all of the details? an accountant? city? province? registry?

I got my incorporation done by lawdepot.ca. It was easy and I needed it RFN for a juicy contract. You can do it yourself at a registry though to save money. I have a good bookkeeper who takes my shoebox of mess and makes a quickbooks file out of it, and a good accountant who keeps me out of trouble with the CRA. For me anyways, both the bookkeeper and accountant are mandatory. If you need one-stop advice, a good accountant will know all the ins and outs, and many of them offer help with getting your business set up.

[Xtrema]

Originally posted by Mitsu3000gt
After some research it seems it can cost up to $1000+ for simple small business taxes, you might be better off doing it yourself or not at all depending on your profits. Unless you are getting enormous benefits from the write-offs, paying 20% of your income or whatever it is for someone to do taxes just didn't seem worth it to me. If you can claim a few "safe" things without paying anyone, that is probably the best compromise.

Safe/Easy stuff:

- Mileage (log it, especially you only have 1 car)
- % of internet/utilities/property tax/insurance (200/1000 sq ft home in as your home office, 1/5 can be write off a expenses)
- Any professional fees
- Training

You can't:
- Mortgage interest when you work from home
- Lease of vehicle if it's your only car

Write off is basically giving you ability to acquire stuff with pre-tax dollars. So it's just a discount, it's not government paying for your stuff.

[ExtraSlow]

Originally posted by Xtrema


Safe/Easy stuff:

- Mileage (log it, especially you only have 1 car)
- % of internet/utilities/property tax/insurance (200/1000 sq ft home in as your home office, 1/5 can be write off a expenses)
- Any professional fees
- Training

You can't:
- Mortgage interest when you work from home
- Lease of vehicle if it's your only car

Write off is basically giving you ability to acquire stuff with pre-tax dollars. So it's just a discount, it's not government paying for your stuff.

My accountant gave me a rule of thumb that's easy to remember and easy to apply. If you are incurring the expense to assist you gaining revenue, then it's a legit expense.

As for home office expenses, I am pretty sure a percentage of your mortgage interest can be claimed, just like a percentage of your home internet/phone etc. I claim mine, although it doesn't add up to much.

[v2kai]

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