You’re going it alone in a sole proprietorship.
That’s great. It means you’ve taken charge of your career and become an entrepreneur.
When it comes to taxes, though, you might be surprised to find out what the balance reads after you’re done calculating your income and deductions via business expenses.
It can sometimes be a lot more than we expected when we got into this self-employed stuff.
There are ways to move the income around your family and reduce your tax bill. This only makes sense, though, if the spouse or family member is in a lower tax bracket or can take advantage of deductions and other tax credits.
Name your spouse as a partner
Declare your spouse or another family member as a business partner. You can agree to share the profits of the partnership, although each of you will have to file a T-2125, Statement of Business or Professional Activities, as a partner.
To be considered a partner, your family member must spend time in the business and have the appropriate skillset for his title. For example, you can’t really put your five-year-old in charge or marketing or name your fifth-grader your accountant.
Hire your kid
Give your teenager a summer job. You can pay family members wages for work performed, but those wages must be considered ‘reasonable.’ It’s a good rule of thumb to use your provincial minimum wage as a starting point.
You might even qualify for a hiring tax credit.
Don’t forget: you need to track your employees’ hours, including payroll deductions, and issue T-4 slips.
Can you help?
We sure can. We specialize in small-business accounting and financial services. Contact one of our tax specialists and we can help you optimize the tax benefits and credits available to self-employed individuals and small businesses.
Fill our our contact form or give us a call at 403-226-8297.