Thursday, 1 May 2014

Taxes! Eek! A Guide to Filing Self Employed Taxes!

Hi Friends,

I'm sad to report it's that time of year again that each of us must endure.... Taxes! However, we will be getting an extra week because the CRA website was down. Did you know you can't file your taxes after 3am? Strange, huh?! I found this out when I tried filing at like 5am and got denied. Taxes are like getting a your yearly physical, it's uncomfortable, you wish you'd live without, but it's absolutely necessary. Here are the step's I take to file my taxes.

Most importantly, it's all about my budgeting document I use everyday! It has the list of all my income for the year, HST collected and paid, and my commissions paid. At the end of each year, I create a new excel sheet and edit my budget according to my needs and tailor it for what my life needs at the time. So, this year I took out the OSAP column and added down payment savings. Right on January 1st, two things happen. First, I can use my budget right off the bat and secondly I create separate envelopes for the year to organize receipts for my business expenses. A budget makes my life just so much easier, I don't know how I lived without one in the past! Trust me on this one! It can save you hours, if not days of agony!

Here are the list of expenses off the CRA website:

With the envelopes, doing a bit of organizing throughout the year will save you so much time and stress during tax time! I try to keep my receipts in chronological order, you don't have to but that's just part of my ocd-ness. Let me explain...

Using my iPad, I create a new spreadsheet to add up my different categories of expenses. For each receipt, I have a column for date, what it's for, the cost, the hst, and even the tip (if it applies). This will make it very easy for me to just plug in the numbers in my tax program later. Funny story! I once spent a couple nights helping a tax preparer with a large database and lots of experience prepare files for her clients. She was teaching me stuff  with the intent so I could help her out during the busy tax time. Having taken the H & R Block tax course, I already knew the basics but one thing the course didn't cover was self employed taxes and I thought it was be nice to shed some light on that for myself. In a way, I did learn a lot about what to do and A LOT more of what not to do. At the time, wanting to be a tax preparer myself, I found out that most people just don't know how to organize their paper work. It's like pulling teeth to get them to give you all the information to properly file their taxes for them, not to mention all the crumbled up receipts and paperwork you must sift through. Then they blame you if you get audited or what not! This totally turned me off from trying to start my own tax business, but I'm willing to help and do it for others who have just a regular old T4 and some RRSP savings. You see, the thing with this person wasn't that she wasn't a good tax preparer, it was her process. She's a bit older and some people just don't like change or adapting as technology changes. I love excel, I love that I type in the numbers and it instantly adds them up for me when I put in the formula. She would only let me add up numbers with an old calculator that prints up using ticker tape. OMG! The horror on my face when I would make one mistake and have to type all the receipts up again, but the worst part of it was that is wasn't a proper functioning one! You press one thing and it doesn't register but you don't notice till you print it up to see. Punching in a bunch of numbers as fast as I can and not having to think I made a mistake since I already knew I punched it in correctly, somehow it was my fault for not carefully checking after each button was pressed. I suggested the excel but she brushed it off as saying something along the lines of "kids and their shortcuts." It's not short cuts, it's called efficiency and I did not appreciate the tone that my generation was lazy! I don't have all day to play with non-functioning calculators that don't get the job done. Geez! You don't have to guess that I never plan to go back there again.

Ok, back to my taxes! With my budget in hand and my tax program, I can easily punch in my personal info and what my income was for the year. Along with my current expenses and deductions, it's pretty quite simple since the program does most of the work for you. Honestly, if you use the easy steps you could get it done in about a couple hours time. An hour or so for adding up your numbers and less for punching them in. The software makes it super easy! It asks you really simple questions and if you don't understand you can click the explain button. The program does all the math for me, it's great! Imagine if I had to manually calculate what I owed for CPP etc.? The horror! And why would anyone want to?

Here are some tips I found most useful!
- Always make sure you hit "YES" to the HST Credit Application. It doesn't hurt! And if you can possibly get some extra dough, why not?
- If you give to charity, you can save them for up to the past five consecutive years and then claim them all at once. This gives you the most bang for your buck!
- Medical expenses are for one year. I choose to just do it from January to December so I can easily remember. But, you can choose any date that you have not previous claimed for. So, maybe you had the bulk of your medical bills from February to next January. That works too!
- If you're not making much this year and are making RRSP contributions, you can defer some or all your RRSP deductions for the year when you are making more money. This will help you to pay less tax in the future.

This is a complete separate return I have to fill out for my business every year because I have a business number. I could do it quarterly but for me it's easier to do it yearly as I don't collect much HST on behalf of the government. This is pretty simple but time consuming as well. I just need to go back to all the times I've collected HST from my clients and paid HST to agents and for expenses etc. I haven't done mine yet but I really should! You just submit those numbers and depending on what you submitted you might get a cheque or a bill.

Hope that helps to clarify the tip of the iceberg of taxes! There is just so much to know and learn that it's practically impossible to know everything. They really should be providing real life classes in schools. Things like budgeting, saving, and taxes shouldn't just be left for at home. Yes, you're parents should take in some accountability but it would be nice for those who don't have the ability to learn at home, that they can get a taste for it in school.

Eros and Pookie

Eros And Pookie

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