January is the start of a New Year and a good time to start planning for your taxes. The better you plan now, the less time your accountant might take preparing your tax return which may even save you some money also the better prepared you will be for the next cycle.
Self-Employed Sole Proprietors
If you or your spouse are reporting any income or loss on your personal tax return from a sole proprietorship or partnership you have until June 15, 2011 to file your 2010 income tax return.
Any taxes that are due must be paid by April 30, 2011 or you will be charged arrears interest from April 30th, 2011 until the date of payment. Interest charges are nasty so if you do not want to incur them, but have no idea how much you owe, make an installment payment by the 30th of April!
Employment and Other Income Earners
If you are an employee and have no income to report from a business (i.e. nothing on lines 162, 164,166,168,170, 135,137,139,141 or 143 of your income tax return) then you only have until April 30th to file your tax return and pay any balance due.
Gathering Your Records
If you are operated a business in 2010 and will be reporting a profit or loss from your sole proprietorship or partnership business, then your accountant will need a summary of your income and expenses for that business. The summary should be a compilation of all your receipted expenses – split out by category – and tallied for the filing period – January 1, 2010 (or the date you started your business) to December 31, 2010. In other words, your accountant will not want to know what you paid for your office supplies in January versus May versus September but rather that you paid $x for the entire calendar year of 2010. If you were registered for GST/HST in 2010, then you need to pull out of the total the amount of GST/HST paid and record that separately unless you were registered for the Quick Method. Be sure to discuss your plans with your accountant BEFORE you put a lot of work into compiling your records so that you are not doing a lot of unnecessary work.
Wages, investment income and other sources of income reported on tax slips will need to accompany the summary of self-employed income and expenses so be sure to hand all those slips over too! If you made donations, have medical costs or have other items that are claimable on your tax return, be sure to include them too.
Being self-employed in 2010, you know your income and expenses long before many employees have their tax slips for the year. As such, take this opportunity to do some tax planning! If you are eligible to contribute to your RRSP’s for the 2010 year, you can make those purchases by March 1, 2011 and use that contribution to reduce the income on which you are taxed for 2010. Accordingly, if you have income from sources other than your business, sometimes your contribution made can result in a refund that is greater than or equal to your tax debt. If you can pay yourself or the government, I’d choose myself any day!