I’m Self-Employed, What Kind of Tax Return Do I Need To File?

Im-Self-Employed.png

Tax season has officially arrived. If you haven’t already, it’s time to start organizing your financial records and gathering up all those expense receipts in preparation of filing your return. If you’re newly self-employed you may be asking yourself which Canadian Revenue Agency tax forms you need to file to make sure you stay on the right side of the tax man this year.

A personal tax return? A business tax return? Both?

The answer to that question depends on the structure of your business and whether you are a proprietorship, partnership or incorporated. Keep reading to for a quick primer on what’s required for each different type of business strucutre.

Sole Proprietorships

If you are a solopreneur (you operate your business by yourself) and are not incorporated, you are a sole proprietor and only have to file a personal tax return. Any profit or loss generated by your business is added to your income on your personal income tax form (T1).

Along with this you must also file form T2125 - a “statement of business or professional activities” - which outlines income, expenses and other financial information about your business. If you happen to receive income from multiple businesses or professional activities remember that you must separate the information and complete an individual form for each.

Partnerships

If your business is a partnership then filing your tax return is not so different than a proprietorship. The key difference being that any income or losses are divided among each partner (according to the terms set out in your partnership agreement) and each respective individual files their own separate T1 personal income tax form.

That said, certain partnerships are required to file a partnership information return (Form T5013) and there are some special rules that apply partnerships concerning capital gains/losses and recapturing cost allowance.

Corporations

If you have an incorporated business the corporation is considered a separate entity and must pay its own taxes. In this case you must file both a corporate tax return (Form T2) as well as a separate personal tax return (Form T1).

Corporate business losses can’t be used to reduce income or add deductions to your personal tax return, but they can be carried back or forward to apply against corporate income in other years.

Another thing to keep in mind is that certain corporations with annual gross revenues exceeding $1 million are required to file their T2 form electronically using the CRA’s EFILE system.

We’re Here to Help

Whether your business is a proprietorship, partnership or incorporated, the rules around filing your tax return can sometimes get confusing and complicated. To maximize your tax deductions as a self-employed person and ensure your return is completed properly, you should consider hiring a tax professional.

Here at Blue Sky we’ll help you keep your tax expenses to a minimum and optimize your hard-earned profits. We’ll do the all heavy lifting this tax season so you can focus on running your business with the peace of mind.

Remember, the April 30th deadline for filing your personal tax return is approaching quickly. If you need a hand filing your 2016 return give us a call today: 289-466-5210.