How Can You File Taxes if You Are Self-employed? Read Along to Know!

If you are someone who is self-employed in Toronto, you can file taxes by reporting your income and expenses on Form T2125 – Statement of Business or Professional Activities, just within your personal T1 tax return. In case of unincorporated businesses, the form, along with a few other documents, needs to be submitted to the CRA by June 15th, even though the tax payments are due on April 30th. You should choose the best accountant in Toronto.

Being a sole proprietor of a partnership would need you to record the income and expenses of your business, relative to your proportional ownership of the total income of your business, on your personal ITR income tax return. Your business’s, sole proprietorship’s, or partnership’s net income would then be taxed at your marginal parental tax rate for the year, as CRA does not view your business or you as separate legal entities, being a sole proprietor.

This blog aims to break down the significant information that you need on how to account for taxes when you are self-employed and meet your tax filing obligations in Toronto.

Meet tax filing obligations in Toronto

In order to meet tax filing obligations in Toronto, if you are a resident of Toronto, you must file your income tax return with the CRA by April 30, or June 15 if you are self-employed. This is done to avoid any penalties, even if you cannot pay. You must gather all your documentation, such as SIN, T4 slips, and receipts, and file them electronically – NETFILE beginning from mid-February in order to receive faster refunds.

Core Accounting steps if you are self-employed in Toronto

Track your Revenue and Expenses – You should maintain detailed records of both your income and expenses related to your business, which includes home office, equipment, and internet, etc. Always make use of spreadsheets or accounting software for the purpose of calculating your net profit (Revenue -Expenses = Net Profit).

Using Form T2125 – You must report all your business or even professional activities on Form T2125, Statement of Business or Professional Activities, which is a part of your T1 personal tax return.
Setting Aside Tax Funds – You should set aside at least 20% to 25% of every payment you receive for covering the income tax and other contributions because these are not actually deducted at source.

HST Registration – In case your gross revenue exceeds $30,000 in a single quarter of the calendar year or over four consecutive quarters, then it is important that you must register for and also collect HST.
Filing Deadlines – While the deadline for the tax return for individuals who are self-employed is June 15th, any balance owing needs to be paid by April 30 th for the avoidance of any penalties or interest as well.

Important Documents that are required

SIN – Social Insurance Number.
T2125 Form – Inside your T1 return.
Records of Expenses – Invoices, receipts, and bank statements, which track revenue and expenses.
Registered Account Documents – FHSA or RRSP contributions, if applicable.

Special things to consider

Tax filing for Partnerships – In case you have a partner, then you have to complete a specific section, too.
Tax filing for Newcomers – If you have arrived in Toronto during the tax year, then maybe you are eligible to claim full tax credits.

Eligibility for tax filing

You must file taxes if you owe taxes, have capital gains, have sold a property, or if you want to claim benefits such as the Canada Workers Benefit or Canada Child Benefit. If you have a modest income as well as a simple tax situation, you can qualify for free tax help via the CVITP – Community Volunteer Income Tax program. It is significant for you to ensure you review the latest changes in the tax for the current filing year. You should use certified software for ensuring accuracy as well.

Core deductions for Tax Savings

Business Expenses – Advertising, professional fees, vehicle expenses, and equipment that is necessary for operations.
Home Office Expenses – Mortgage interest, a portion of rent, utilities, and insurance, which is based on the workspace area.

Conclusion

As a member in a partnership or a sole proprietor, it is essential for you to understand the obligations of your tax filing on your self-employment income in Toronto. It can be hard at times to prepare self-employed taxes in Toronto. It is suggested that you look for the best Tax accountant in Toronto who will help you guide you through the further terms and manage your business earnings and expenses really easily, thereby preparing your taxes relative to your particular business situation for the maximisation of your tax savings.