income tax saving tips for your online business

taxsupport.ca, (for personal use only)

Tax Saving Tips for Your Online Business

More Money for You, Your Family and Your Business


What is Tax?

• Cost added to product and services without any DIRECT BENEFIT to you.

• Tax revenue is used to pay for management of government, infrastructure development, social services, etc. where, you might or might not have a direct input how the money should be spent.

• It is important that we all should pay our FAIR share of tax, no more or less.

• In Canada there are over 65 types of taxes levied on us.• Tax is levied on many disguises – Direct Tax, Indirect

Tax, Embedded Tax, Fees, Duties, Surcharge,


Some Unusual Tax

• Carbon Tax? Poverty Tax? Homeless Housing Tax? Access Fee? Tree Cutting Tax? Airline Fuel Tax? Airport Security Tax? Road Safety Tax? Occupancy Tax? Marriage Lic. Fee? Health Care Tax (MSP)? Excise Tax? Luxury Goods Tax? School Tax?

• If you take account of all the taxes you pay, it could easily be 50% of your income goes to pay some form of tax.


Your Real Disposable Income

• Salary/Income 2500/every two weeks

• www.cra.gc.ca/pdoc

For Emp For Self Emp

Income 2,500.00 2,500.00

Fed Tax (356.94) (356.94)

Prov. Tax (BC) (129.00) (129.00)

CPP (117.09) (234.18)

EI (43.25)

Total Tax at Source (646.28) (720.12)

Net After Tax 1,853.72 1,779.88

Monthly Gross Income 5,000.00 5,000.00

Tax at Source (1,292.56) (1,440.24)

Net Monthly Income 3,707.44 3,559.76

Consumer Tax (HST) (397.00) (381.00)

Real Income 3,310.44 3,178.76

Monthly Tax 1,689.56 1,821.24

Annual Income 60,000.00 60,000.00

Annual Tax 20,274.72 21,854.88

Your Disposable Income 39,725.28 38,145.12

Real Income Tax 34% 36%


Canada Revenue Agency

• Federal Tax Agency for collecting Tax Revenue.• Can Garnish Your Wage• Can Freeze Your Bank Account• Can sell your assets for Tax Collection• Can asses your Tax, if you fail to file your return• http://www.cra-arc.gc.ca/nwsrm/cnvctns/menu-eng.html

• Each Province has there own Tax Agencies to manage Provincial Taxes.

http://www.cra-arc.gc.ca/nwsrm/cnvctns/menu-eng.html


Tax Rates

• In Canada, while most of the tax rates are fixed, only income tax is progressive. Tax rate varies with level of income.

• Combined Federal and Provincial Tax could be as high as 42% and as low as 20%.

• By Tax Planning, even if your income is at 42% tax rate, it is possible to bring down the tax rate to 20%, leaving 22% of your money with you for your family and business. Income Tax is the only tax, that you can plan and decide how much you want to pay or save. HST is other tax you can plan, how much you want to pay. All other tax are imposed directly or indirectly, and you must pay.

Income Fed Tax Rate Income Prov. Tax Rate

upto $40,726 15% upto $35,716 5.06%

$40,726 -$81,452 22% $35,716 - $71,433 7.70%

$81,452 -$126,264 26% $71,433 - $82,014 10.50%

above $126,264 29% $82,014 -$99,588 12.29%

above $99,588 14.70%


Not So Fun Facts

• Cost of a $100 Restaurant Meal

Cost of Meal 100.00

HST 12.00

TIPS 15.00

Total (after Tax) 127.00

Tax Rate 36% 71.43

Before Tax Income (Your Cost) 198.43

After Tax Income 127.00


Your Online Business• Product or Service• Business Structure

– Sole Proprietors (Most Self Employed)– Partnerships– Corporations

• BC• Canada• US Corp., LLC’s

When starting a business keep costs low, so that you have money to spend, running your actual business.


Record Keeping

• http://www.cra-arc.gc.ca/tx/bsnss/tpcs/kprc/menu-eng.html

• When you start a business in Canada by law you are required to keep financial records.

• Beside the law, you need to keep financial records to measure profitability, decide on pricing, expansion or quitting.

• Record keeping is important to do accounting and financial statements of your business and to know your Profit/Loss and Tax liability.

• Tax on business is imposed on Net Profit. • Net Profit = All Revenue – All Expenses.

It is very important to keep your personal and business finances separate and keep detail records of all business related expenses.

http://www.cra-arc.gc.ca/tx/bsnss/tpcs/kprc/menu-eng.html


Your Real Disposable Income

• Salary/Income 2500/every two weeks

• www.cra.gc.ca/pdoc

For Emp For Self Emp

Income 2,500.00 2,500.00

Fed Tax (356.94) (356.94)

Prov. Tax (BC) (129.00) (129.00)

CPP (117.09) (234.18)

EI (43.25)

Total Tax at Source (646.28) (720.12)

Net After Tax 1,853.72 1,779.88

Monthly Gross Income 5,000.00 5,000.00

Tax at Source (1,292.56) (1,440.24)

Net Monthly Income 3,707.44 3,559.76

Consumer Tax (HST) (397.00) (381.00)

Real Income 3,310.44 3,178.76

Monthly Tax 1,689.56 1,821.24

Annual Income 60,000.00 60,000.00

Annual Tax 20,274.72 21,854.88

Your Disposable Income 39,725.28 38,145.12

Real Income Tax 34% 36%


Revenue

Sale of Products/ Services and Receive Payments:

• Online Payments – Paypal, Google Checkout

• Interac Debit, Moneries Credit

• Cheques

• Cash


On Line Sales

• When you are selling on line, must take into account of your cost of goods sold.

• CRA is requesting information from Ebay, Amazon, Paypal about Canadian account.

• If you have online business, for Tax purposes, consider it just like running a regular business, taking account of all business expenses.


Expenses

• Advertising/Marketing– All expense related to promoting your

products or services.– Business Card / Flyers / Website /On Line

Ad / SEO / Web Designer / Networking / Press / etc.


Expenses

• Meals and Entertainment– Meeting with customers / vendors to explore

business opportunities.– Meeting with business partners / peers– 50% of M&E is allowable business exp.


Expenses

• Bad Debts – When customers do not pay

• Insurance – Business Insurance, Owners Life Insurance, Health Insurance etc.

• Interest – Interest you pay on Loan / Credit Card Charges / Bank Overdraft for business use.


Expenses

• Business – License (Registration/City)– Fees (Bank/CC)– Dues (Chamber of Commerce/ Biz Entity)– Memberships ( Prof. Membership Fees)– Subscriptions (Industry Journals /

Newspapers/Magazines)


Expenses

• Office Expense – Useable expenses, water, coffee, small office items pins/clips.

• Office Supplies – Papers, Ink, Pens, Stationeries.

If supplies are issued for delivery or manufacturing of products or services, they are part of COGS.


Expenses

• Professional Fees– Accounting– Publicist– Consultant/Coaching– Legal


Expenses

• Management Fees – Owners / Managers Withdraw

• Salary / Wages / Casual Labour

• Employee insurance / Benefits


Expenses

• Rent – Office / Storage / Studio

• Property Taxes – Triple Net (commercial rent)

• Maintenance / Repair – Leasehold Property Improvement to run the business.

• *Not Capital Improvement


Expenses

• Travel – Airfare / Car – Lodging– Meals (50%)– Emergency Travel Exp


Expenses

• Telephone – Land Line / Cell / VOIP / 1 – 800 number (business use)

• Utilities – Water / Heat / Internet /

• Postage – Canada Post/ Fedex/UPS

• Fuel Costs – Landscaper


Expenses

• Automobile –

Leasing Cost/Interest

Fuel and Oil

Insurance

Lic. & Registration

Maintenance


Expenses

• Business use of Home Expense– Heat– Electricity– Insurance– Maintenance– Strata fees– Property Taxes– Mortgage Interest


Expense

• Specific to online business– Secured payment site– BBB membership– Trusted website– Special software license for online shop– Online product sourcing/research/sample

review– Cost of damaged/expired products


Tax and Cash Flow

• Easiest way to increase your cash flow is by planning and reducing your tax liability.

• If you miss to claim an expense item to claim allowable tax credit, you are paying too much tax.

• If you are in 36% tax bracket, for every $100 you can claim in expense will save you $36 in taxes, that is money in your pocket.


Work Smart

• Tax is progressive. More income means more tax.

• Tax planning will help you boost your disposable earning at the present income level.

• Work less, spend more time with your family, have more time to do what you love.


[email protected]

http://www.taxsupport.ca/

income tax saving tips for your online business

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