Tax time can feel like an intense time for the Canadian entrepreneur, especially if you’re sitting there racking your brain right now thinking “why is my tax bill so high?” – that’s what you Googled to get here right?
Sadly, most sole proprietors don’t know about all the tax write offs available to them to help lower their tax bill without feeling shady.
But don’t worry, I’ve got you covered.
In this post, I’m going to talk you through some of the main reasons why your tax bill might be higher than expected and how you can make sure that you don’t have any unnecessary tax surprises in the future by using my go-to bookkeeping system, Quickbooks™.
Is Canada a Heavily Taxed Country?
If you’re becoming a bit of a regular – hey bestie – on this blog, you’ll know that I’ve mentioned before that the tax rate in Canada is pretty high.
And depending on your province, you could be liable for higher taxes than average.
Thankfully, after this year’s budget it was announced that for the 2024-2025 tax season, personal and corporate tax rates WON’T be increasing.
So there’s no reason to freak out. Plus, if you follow my recommendations in this article, then next year, your tax bill won’t sting so much.
And, if you’ve made any mishaps and didn’t realise there were expenses you could have in previous years, the CRA allows you to re-file your past returns with updated information so you can claim things that you didn’t know you could in previous years which is pretty cool!
Tax Mistake 1: You’re Missing Out on Little-Known Write Offs
Literally the biggest mistake I see small business owners make during tax season is not claiming for ALL the write offs that they’re entitled to.
And it sucks because most business owners know about the easy things like office supplies, staff and stock for your business.
But so few people know about all the other things that really add up for small business owners you know.
Things like home office expenses, because we’ve all started out in our garage or spare room, carry forward losses from years that didn’t go as you had hoped, education or training and even your RRSP – Yep, you can save for retirement AND get tax relief on it.
I cover all of this inside my ultimate guide to tax write offs for small business owners.
Or, if you want a full mini training and 40 specific tax write offs that you can claim this year, next, and forevermore so you feel at ease knowing that you’ll never get a surprisingly large tax bill again; this solopreneur write off guide has your name on it.
Tax Mistake 2: Lack of Tax Planning
Planning your tax strategy might feel boring as hell. And maybe a bit intimidating.
But it beats overpaying your taxes.
And this isn’t something you should be worrying about come tax season. Nope, it’s a monthly task according to the Financial post. And I agree.
If you can get proactive with your tax planning for your small business then you could literally save thousands of dollars. Plus as CEO of your business (whether you like to call yourself that or not) knowing your numbers is incredibly valuable.
Financial awareness and understanding is the first step in tax planning, and you honestly don’t need to hire an expensive accountant to get this education.
It’s literally why I created Chillbooks™, it’s a one-off fee that’s still way more affordable than paying an accountancy firm that literally financially empowers you to get on top of your books.
I mean how much more chill you’d feel if you knew your numbers were taken care of.
And how smug you’d be knowing that it was all down to you.
Surprise $20k tax bills – no longer on your radar.
In the third module of Chillbooks I teach business owners like yourself :
- How taxes work for each business structure (and how they can pay themselves!)
- How to forecast their tax bill on a regular basis
- Important dates and deadlines to keep in the calendar
And I explain it in human terms – no accountancy jargon around here – because: since when does that help everyday people like yourself?!
Tax Mistake 3: Incorrect Company Structure
Probably the third most common mistake that results in business owners overpaying during tax season is having the wrong company structure.
In Canada, there are main types of company structures:
- Sole proprietorship (self-employed)
- Partnership
- Corporation
Most people who I tend to work with are a sole proprietor, but I do work with incorporated businesses as well because it can often be more tax efficient for them to run than way.
Plus, my preferred accounting software QuickBooks™ is perfect for both sole proprietors and people who’ve decided to incorporate their business.
Depending on your net income and your long term goals, it may be more efficient for you to incorporate rather than stay a sole proprietor and record your business income on your personal income tax return each year.
Corporations are able to pay their shareholders (read: YOU) dividend payouts which are taxed at a much lower rate than personal income tax.
Note though, these payments come AFTER you’ve paid any corporation tax so incorporating too early in your business could be just as tax inefficient as incorporating too late after a nasty personal tax bill – so be sure to do your research.
No matter your company structure, filing your taxes is fairly simple to navigate when you’re using the right tools, which is why I’ll forever recommend using QuickBooks™ to stay on top of all things finance in your business.
And, inside Chillbooks™, I teach people how to set up their books to corporation standards even if they’re not incorporated yet just to learn things properly and ensure when they do incorporate they already have the skillset in place to manage the books which will make the transition from sole proprietor to incorporated business owner WAY easier when (or if) you want to make that switch.
It helps my clients and I keep our cool about tracking our income, expenses, profitability and tax liability year round and not just during tax season when everyone is talking about it. It’s a pretty huge weight lifted off your shoulders when you know your numbers.
Keep Your Cool Next Tax Season: Avoid Overpaying Tax
Whilst there are other mistakes I see business owners make when they get the shock of an unnecessarily high tax bill, these three are the MAIN culprits.
Thankfully it’s something that’s so easily avoided when you’re equipped with the right knowledge to make the most tax efficient decisions for your business.
Inside Chillbooks™, I help you to make finance feel FUN in your business, rather than something you put off until tax season is looming over you like a storm cloud.
So you’re not overpaying tax and never have to ask yourself again… why is my tax bill so high?!
Ready to take back control of your finances?
Inside the Solopreneur Write Off Guide you’ll get a checklist of 40 Solopreneur Write Offs that you can claim this year (and forevermore) so that you can feel confident that you’re not overpaying in tax.
