Income Tax In Toronto for Small Businesses & Things to Know

Category: Finance 71

If you run a small business in Canada, you must file income tax annually. Running a successful business in Toronto requires you to file income tax and remain prepared for it. Thus, you have to comprehend which expenses qualify for Canadian income tax deductions legally. Plus, you need to know the way to maximize those deductions. Moreover, filing an income tax return in Toronto needs you to know which form you have to complete.

Reporting Your Income Tax Return as a Small Business in Canada:-

You have to report your income tax return based on how your business is structured. As a sole proprietorship or partnership, you need to report your business income on the T1 personal income tax form. If a small business is you, you must include Form T2125 (Statement of Business or Professional Activities) alongside T1 to report your business income. As an incorporated business in Toronto, you must report your business income on the T2 form (Corporate Income Tax Return). Remember, an incorporated small business is a separate entity, so it must file its own return.

What Are Legitimate Canadian Income Tax Deductions?

Before completing your tax return or taking it, you have to know which business expenses qualify as Canadian income tax deductions. You can also capitalize on income tax deductions through the following ways:

  • Keep track of receipts pertinent to the cost of business doings. You must maintain a record of such receipts as a home-based business owner to claim deductions.
  • Comprehend the rules for expenses that qualify as Canada Revenue Agency’s ‘other’ category, like travel-related expenses, advertising expenses, and more.
  • Never forget to visit CRA (Canada Revenue Agency) website to know if any business expense qualifies as a legitimate deduction. Plus, you must know the rules for claiming a particular business expense.

Tax Advantages of Running a Home–Based Business in Toronto:-

Some home-based business owners overlook the expenses, such as home maintenance and home-ownership, and never claim for those. Therefore, you must not forget about claiming deductions against such expenses when filing your income tax return in Toronto. A small business is eligible for several home-based business tax deductions, so you must know the rules for claiming such.

Additional Deductions:-

You can take advantage of some additional deductions as well as a home-based business owner, mentioned below:

  1. Capital Cost Allowance (CCA): You must know how to compute it to make the most of your CCA claim.
  2. Registered Retirement Savings Plan (RRSP): You can reduce your Candian small business income tax burdens if you are a sole proprietor or in partnerships. Find out your RRSP contributions and time those with perfections for the maximum income tax impact.
  3. Scientific Research and Experimental Development (SR and ED): These deductions are not only applicable to larger or incorporated businesses. You can also take advantage of the SR & ED Tax Credit Program as a small business owner.
  4. Gifts to Employees as Deductions: As a generous employer who gifts your employees, you must understand your income tax deduction rules for gifting.

Using a Tax Accountant for Preparing Income Tax Returns:-

Many small businesses in Toronto hire a tax accountant to complete their Canadian income tax returns. If you want to save your precious time and file your returns without mistake, you should hire a tax expert. Therefore, always look for a good accountant if your small business does not have one. Plus, you must prepare your tax information in advance so that your accountant has all the required information.

Options to File Your Canadian Income Tax:-

CRA offers several different options for filing Canadian income tax return, mentioned below:

  1. If you are filing T1 personal income tax returns, you can file your returns electronically. Electronic filing is available for corporations also.
  2. Individuals also have the option to mail and hand-deliver their returns to an apt CRA tax center.

Internet Filing a T2 Corporate Tax Return:-

Mostly, corporations use commercial tax processing software, and the CRA has implemented mandatory internet filing for corporations with revenue over $1 million. Corporations can file electronically except for insurance companies, some non-resident corporations, and some others. Corporations subject to mandatory internet filing can send a paper return. But, CRA can charge a $1000 filing penalty for additional processing.

Conclusion:-

Filing an income tax return in Toronto needs you to know which form you have to use as a small business owner. For example, sole proprietors have to use the T1 form, whereas you need to use the T2125 form if the small business is you. If you keep track of your business receipts will help you claim eligible deductions. You cannot ignore home-ownership and home maintenance expenses claims for tax deductions as a home-based business owner. Hiring a tax accountant cannot only help you file your income tax return but also guide you about additional claims. Lastly, you have to use the most convenient option to file your returns and feel relaxed with tax filing.

 

 

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