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Life as an Entrepreneur..... all the nitty gritty
Are You Ready to Be an Entrepreneur?
What’s the difference between being self-employed and being an entrepreneur?
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Have ideas? A Business Plan? Great Foresight?
So, what sets the two apart? We believe it comes down to people and risk.
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Self-Employed means working independently—whether as a freelancer, sole proprietor, or business owner. You’re working for yourself instead of an employer.
An Entrepreneur, on the other hand, is a different breed of self-employed. They not only work for themselves but also organize and operate multiple businesses, often taking on greater-than-average risks.
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Entrepreneurs take on the risk with hope of profit. They bring great ideas, spirit, and dedication to the table. For them, risk is the reward.
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The Right Team is Essential!
As an entrepreneur, a dedicated team of accounting and business professionals is vital for growth. Having business plans, strategy, and processes in place can greatly determine success.
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Running your own business is all-consuming. It can be exhausting, even isolating.
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Entrepreneurship is about more than numbers. It’s about building a community around your brand and product, staying motivated, and knowing when to seek support and grow your team.
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As experienced entrepreneurs and small business owners, we know the journey well. We’re committed to supporting fellow entrepreneurs and sharing insights every step of the way.
Self-Employed | Sole Proprietorship
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​Maybe you started by reading our Starting a business tab and are wanting to start by Self Employment also known as a Sole Proprietorship and are wanting a bit more information, primarily what needs to occur and how taxes work for you.
Lets start by touching base a bit on what makes a Sole Proprietorship otherwise known as Self-Employed and then get into the taxes.
Most people are wanting to make a go of it either because they are sick and tired of working for someone else, have an AMAZING idea and are working on it to become full time, working on the side to make ends meet, or like the brave quitting that full time job to DO IT!
Self-employment is amazing in so many ways, and whatever the reasons you have decided to become self-employed, know that you NEED the right foundations ie, IDEA, MARKETING, BUSINESS, ACCOUNTING, and finally know you're still required to pay tax on the monies that you earn.
If you earn money in anyway outside of a regular job where you earn a pay cheque and that employer is taking off your taxes you are deemed Self-Employed and are required to report that income to CRA.
I have found that many people come to us asking questions at tax time, and frankly that doing it at that point is too late.....
The biggest issue we find is people do not see themselves as Self-Employed or a Sole Proprietor.....
So lets touch base on that first...
How to know if you're Self Employed??
Lets talk terminology:
"I'm a freelancer"
"I'm a small business Owner"
"I just earn a bit as a side hustle"
"I just do cash gigs"
"I'm a stay at home mom that just watches kids its only 40.00 a day"
"I'm a contract worker"
All of these terms or scenarios mean that you are in-fact a Sole Proprietorship, or Self-Employed.
These all fall under the umbrella of Self Employed.
Self-Employment as simple as possible means you are earning income by yourself outside of an employer.
Some small "exceptions" to this or one offs, ie, Cash tips from your job, or you're a contract worker where the company is taking CPP off your cheques, or your half employee and you receive a T2200 with your income as you invoice for a truck or other items.
Aside from the small listed "exceptions" above those exceptions still fall under the same umbrella and you may not be self-employed in the traditional sense, but you should still be saving a percentage of your income for tax time, or tax installments to CRA.
These exceptions also make things a bit more complicated, some Employers have you doing items as a Contractor, but in actuality makes you a full time employee.
As it's just as important to know if your Self Employed, its equally important to know if CRA deems your self-employment actually employment.
Click here for a PDF on determining Sub Contractor or Employee.
determine_sub_to_employee.pdf
Bottom line if you earn it and are not claiming it even if it's cash, that is considered tax evasion and is illegal.
Now that we have established what you, your company, or side business is Self-Employed, lets talk being organized, Bookkeeping and Accounting:
There are so many great free and reasonable priced courses and resources out there so anyone can learn how to keep their books and to have the right ideas to make their business come to fruition, but I can tell you so many people do not make use of these and many do not have the discipline to take these courses learn the right tasks at the beginning to ensure that their Accounting and Bookkeeping is taken care of prior to tax season.
Let me tell you to be organized, self-disciplined, and to continue to educate yourself in business and the tasks will help you in so many ways and I can GUARANTEE that it will increase your business revenue and in the long run save you costly expenses in fixing your Accounting and Bookkeeping at a later date.
I will link back briefly to our definitions here from our Starting our Business page and touch base on the requirement portion.
Sole Proprietorship and Partnerships must file individual returns regardless of whether they have any business income to report.
If your business is active, you should complete and include form T2125 with your personal tax return.
You might have incurred business expenses even if your business had no revenue, generating a business loss that can be written off against other personal income.
For example, you might have started a small business on the side in addition to your regular job. Your business might not generate income in the first year or possibly even in the first few years, but it has startup expenses.
These expenses can be written off against the income from your regular job, although there are limits in general and also limits depending on the type of business or grouping in which you fall between.
Please click here for a PDF on a list of potential write offs.
self_employment_list_potential_expenses.pdf
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If you need assistance or would like to go over getting organized prior to tax time or help in completing your personal taxes, please schedule a call with us, we're more than happy to go over and provide to you a list, help you get the software to keep you organized and ensure that everything is filed correctly.
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If you want more information and to see important facts from CRA please see this page:
Are you self employed? Know your tax obligation (linked to CRA page)
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Information on calculating taxes- Self-Employed
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What is the big difference between being an employee earning a paycheque at a company compared to being self-employed?
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When you're self employed, that means YOU BECOME FULLY RESPONSIBLE for setting aside the money to pay your income taxes and contribute to the Canada Pension Plan (CPP) and any adjustments to this not limited to be the new CPP2 depending on earnings.
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It also means you have to pay that money directly to the government of Canada via your CRA MY ACCOUNT.
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When you're an employee, your employer deals with all of these items for you by taking the required percentages that change annually off your gross pay each pay cheque and submitting that amount to the government on your behalf, afterwards, to show what you have earned you're given a T4 or the required tax form for the type of income you're earning.
This is why when you're an employee, you should not have a tax bill to pay when you file your taxes, this is sometimes not the case and based on your personal circumstances and how you filled out tax forms with your employer. In most cases, you tax bill should be 0.00 come April of every year. Often they have taken off too much/ or you are eligible for other tax deductions and credits creating the Tax Refund.
Most people are aware of this, however some truly feel that a tax refund is free money from CRA and depending on your personal situation that entitles you to more or less...... (you would be surprised how many think this!)
A tax refund is not free money, it's literally the government giving you back the money deducted from your paycheques.
However, when you're self-employed, YOU WILL ALWAYS HAVE A TAX BILL, because you do not have an employer doing that portion for you. Instead, you're now that employer, your own boss, and in most cases you become your own Bookkeeper and Accountant.
You easily can become your own Bookkeeper and Accountant, and or be the Bookkeeper for the year and bring the file to your Accountant to do your personal remittances, either way, a T2125 needs to be a part of you T1 Remittance on your personal income taxes.
I will tell you without a doubt it is very important to know what your write offs are.
It is very important to start out correctly, you can correct if you have had some issues in the past, but sometimes it is best to have this information before starting to earn your income.
NOW: With all that knowledge, what are you required to pay as a Self-Employed Individual?
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Personal Income tax on your business' earning less the business expenses and write offs
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CPP (Canada Pension Plan)
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EI in some cases (voluntary, and not always required or available to be paid)
So lets talk how does this work?
Example: Let's say you have earned approx. 120,000 in Business Revenue.
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Business revenue is considered the total amount of income you have generated for your business by selling goods and or services in your province.
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You're over the 30,000 and therefore are required to do a GST Return and have charged GST on the sales that generated your revenue. Please note that you're required to have registered and a valid GST no. within 29 days of your effective date of registration. (if you have just stumbled upon this requirement, please see below links to be able to call and/or visit CRA site for GST no.)
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Note, each province is different in regards to provincial taxes and requirements based on your business, please see the links below for more information.
Now: lets say you have approx. 55,000 in Business Expenses and Operating costs:
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This leaves you with: 65,000 in business earnings after your expenses.
Remember I mentioned above the amazing free tools and courses, (lets use one of them here)
Please click the button below to be taken to a great software to use for personal taxes- Simple Tax
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We have many free downloads, online calculators and Worksheets for individuals and self-employed.
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