How to get prepared for tax season

Tax season is around the corner and one of the most common questions for first time Taxesentrepreneurs is “How do I report my business income to Canadian Revenue Agency (CRA)?

Here are some quick tips to help get you started:

Produce an income statement

Before completing the required CRA documentation you will want to produce an income statement or P&L (Profit & Loss) for the business.

  • Indicates sales, costs of sales, expenses and deductions and/or depreciation.
  • This statement will provide you with the bottom line number which is Net income before taxes.
  • Figures for the P&L statement will come from “receipts and invoices” from the annual operations from January 1st through December 31st.
  • Be sure that all documents and receipts are in possession as these will be needed if requested by CRA.

After completing the business financials, the reporting documentation can begin.

Required documentation to report self-employed income

  • CRA Business and Professional Income Guide which includes Form # T2125

http://www.cra-arc.gc.ca/E/pbg/tf/t2125/README.html

  • CRA RC4070 Information for Canadian Small Business Guide

http://www.cra-arc.gc.ca/E/pub/tg/rc4070/README.html

  • CRA T1 General Individual Tax Return 2014 or alternatively software that is available.

http://www.cra-arc.gc.ca/E/pbg/tf/5006-r/5006-r-14e.pdf

When reporting self-employed income, one does NOT have to complete two tax filings (one for personal; one for business). All income is reported on the T1 General Individual Tax return. If you have experience filing your own T1 General tax return, you will see a similarity in completing the T2125 for reporting business/self-employed income.

  • Complete T2125 using the data from your Income statement or P&L statement.
  • Having all receipts and documents will help with completing this form.
  • These guides provide guidance on how to complete the filing and what expenses and deductions are allowable.
  • When in doubt, contact CRA for clarification and a ruling to avoid future issues at cra.gc.ca or by calling 1-800-959-5525.

Business Deductions

In order to claim business deductions such as use of personal vehicle; use of home office and equipment and the like it is best to review the CRA Information for Canadian Small Business Guide.  This will provide information on what is an allowable expense to be reported on T2125.

Final Steps

When you have completed form T2125 it should produce a final figure that represents your Net income before taxes. This number will be added to the earned income of your T1 General Tax return. You will then complete your T1 General tax return and calculate the personal income tax owing.

If you have any further questions or need more information about reporting your business income, please feel free to contact the Halton Small Business Centre.
For more information about resources, services, business events and seminars, contact us by dialing 311, 1-866-442-5866, online at Haltonsmallbusiness.ca, by email at smallbusiness@halton.ca or visit us at 1151 Bronte Road, Oakville. You can also follow us on Twitter .

 

 

 

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This entry was posted in Economic Development, Halton Small Business Centre, Small Business Advice, Tips and Advice and tagged , , , , . Bookmark the permalink.

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