We meet many small business owners for the first time during tax season. It isn’t unusual for them to have incomplete knowledge of their income tax responsibilities in regards to their business. These are the top three things that surprise them the most to learn.
1. CPP Contributions
When you are self-employed, CPP contributions are calculated on your tax return. For 2018, this amounts to 9.9% of earnings to a maximum contribution of $5,187.60. New clients often ask why they owe so much tax and often, it’s the CPP that is throwing off their estimate. When making quarterly tax installments for 2018, CPP should considered.
2. Business income is reported on personal tax return
When you run an unincorporated business, all business earnings are reported on your personal tax return. Many new business owners think that they file a separate tax return for the business. Filing a single return can be a bonus in the early years of a business because business losses can be applied against other types of income, thereby lowering the overall tax bill.
3. The impact of late tax filing
We often here from business owners that haven’t filed their tax returns. While they understand that late filing attracts penalties (which are 5% of taxes owed plus 1% per month late up to twelve months), they often do not understand that the penalties can be doubled if they are a repeat late filer. If you have employees, remitting the payroll deductions even one day late will cost you 3% of the remittance amount. At 7 days, this jumps to 10%.