Just over a week ago in my post on taxes, I had mentioned how I was fearing the yearly trip to get my taxes done. On Monday, when I went to see my accountant, my fears were met.
I had spent the previous evening going through my receipts of the previous year and gathering and printing all of my accounting files from private ads and 3rd-party ad networks. Since I’m an affiliate and member of literally dozens of various ad networks, this took quite a while.
Fortunately, my meticulous record-keeping and decent accounting paid off as usual and made things easier for both my accountant and I. Now, I could definitely keep better records, my current system is far from perfect, but then I’d start feeling more like a secretary than I would an entrepreneur. No offence to secretarys.
Anyhow, seeing as we’re in the midst of tax season right now, my accountant’s company is swamped with work and I won’t see the exact results of my taxes for another several days. However, I asked for a rough estimatation of what I’d be looking to pay this time around.
First, my write-off’s. I must say that I was very surprised in how much I spent in outsourcing and business-related expenditures. I spent around $9,000 USD from PayPal, $10,000 CDN from my receipts folder (Western Union, 2CheckOut, computer, laptop, etc.), $7,000 in rent, and $2,000 on my dedicated servers, totalling around $30,000!
Now, I should mention that items such as my computer and desk are not 100% write-off’s. Rent, also, is only proportionately determined as to what can be written off, in other words, a very small amount. However, I was surprised that everything else was a 100% write-off, which is definitely good in helping lower my taxes.
Another surprise was how much I actually earned in 2006. Without actually calculating anything, I had roughly estimated it would have been $100,000 CDN, but it was actually quite lower, only around $85,000. I think I had miscalculated because I didn’t actually receive my cheque for the large domain brokerage sale until February, which would have then put me at $100,000.
Anyhow, my accountant told me that my estimated amount owing will be around $20,000. Ack! Last year I only owed $200! Fortunately, while I could definitely be smarter with my money, I was smart enough to put money away each month into a taxes account. Looking at my bank statement right now, it turns out I was pretty close with estimating what I might have to pay, and am only a few thousand dollars short in my taxes account, which is fine, as I can still pay the amount from my main or chequings account.
So, luckily I have the money all ready to give them, and am just glad that I had been saving the money away all year.
Thankfully though, due to my large expenditure write-off’s my amount owing is far less than it could have been; I could have easily owed $40,000 or more.
Guess what? The bad news doesn’s stop at the $20,000.
Apparantly the CRA, Canadian Revenue Agency, has a rule that stipulates if you ever owe more than $2,000 that next year you will have to pay quarterly, in advance. How do this do this? Well, they basically assume that you will make as much as you did last year, and base the numbers on the previous year’s statement. In my case, since it will be nearly April before the CRA gets my return, there will be no time to do it quarterly anymore and I’ll have to do two lump payements instead.
If you factor in that I’ll be paying $20,000 for 2006, that means I’ll have another $10,000 owing right away for the first lump payment for 2007. What really bugs me is that I have to pay for 2007 before actually even earning any money (as far as they know). That’s also money that could be earning interest in the bank or being invested into projects. In the case that I don’t make as much as they estimate, I will get a refund, but still…
Blogger John Chow actually had the same problem happen to him back in August, and now has to pay quarterly in advance too.
I should note though, that for people who work a ‘normal’ job actually have to pay every two-weeks, as the government automatically takes it out of their paycheques before they even see it. That’s why most people get a slight return or else only usually owe a few bucks.
Anyhow, there you have it. Poor wittle Tyler owes the CRA $30,000. Oh, you’ll get your money you dirty bastards, but I won’t go quietly!