“But in this world nothing can be said to be certain, except death and taxes” — Benjamin Franklin
Grab your car keys and drive far, far away, because it’s that time of year again: tax season.
Now, for most people, tax time is usually nothing more than an inconvenience. Working for somebody else, they already get their tax portion automatically taken from each paycheque. As a result, when they get their taxes done they are usually only looking at a small number, usually anywhere from $50-300. And quite often this number will be negative, meaning they get a small return.
However, for the self-employed, this is a very different story. There is no bi-weekly or monthly company paycheque that takes out the tax portion. We get the benefit of holding onto the government’s money for an entire year which has it’s benefits, but when tax season comes, we also get a massive bill. What’s even worse is that being self employed, we have to pay twice as much CPP (Canadian Pension Plan, not sure what it’s called in the US or other countries) one as the employer and one as the employee. Stupid, I know. You’d think they’d reward self-employed, home businesses to help grow small businesses.
Something I hear all too often from people is “Ah, just write it off”, or “Trust me, you can write off sooo much, virtually everything!”. Now, I’m no tax accountant or even remotely knowledgable in this area, but I do know what my accountant tells me. You can’t just write off everything, not legally anyhow.
I think that most people who claim the above in such a simplistic manner either are not self-employed and filing taxes, or are indeed writing off ‘everything’, but are doing so illegally (even if they don’t know it).
Especially in the case of the Internet, there is such low overhead.. I virtually have zero overhead. I can’t claim gas because I don’t drive to work, I have no produce or widgets to buy, and I don’t pay couriers or delivery services.
That being said, I do work from home so I can deduct a certain amount of mortgage, but it’s not 100%. There are factors involved, basically stating the area I use for work, which is then calculated as a percentage from my total square footage of my place, and even then it’s not a 100% deduction I don’t believe.
Same with other things. If I bought a printer for work, it’s not a 100% deduction of the $100 or so the printer cost, it’d be something like 20% deductible, so $20. And there are many rules such as you must have owned it for an entire year before being able to write it off.
As for people stating I can simply write off whenever I eat out as ‘business expenses’, it’s not that easy. Again, at least not if you want to do so legally. According to my accountant, in order to do that, you need to keep the receipts, and should keep information on what you talked about, where you ate, etc. You can’t simply state on your taxes that you went to McDonalds a lot and then subtract $200.
That being said, there are some write-offs that will help me, such as whenever I hired a programmer or designer, or whenever I bought a domain or website. I can also write off services such as hosting, internet connection, etc.
Anyhow, I’m getting a bit off track here, but I think it’s important to note that you can’t just simply ‘write off’ everything under the sun.
I’ll finish this post by stating that I’m quite anxious and nervous for when I see my accountant in a week or two. I never know how much I’ll need to pay in taxes until I meet with her, and it’s always nervewracking. Last year I mentioned in my tax post that I was fairly certain I would owe $xx,xxx in taxes, but it turned out to be only $200.
This year I still think I’ll owe $xx,xxx, but I’m fairly certain of it this time. Last year I was fortunate to have many things work for me financially that lowered my amount drastically. Plus, the 2006 year for me was my biggest year yet, having made over $100,000, which puts me in the highest tax bracket I believe. Fortunately, I’ve been putting money away each month into a ‘tax’ account, and have over $30,000 ready for taxes if it gets that bad, but here’s hoping it won’t be that bad.
Cross your fingers for me! Let it be low, oh let it be low! I’ll update you when I get the exact number I owe.