When it comes time to file your annual tax return with the CRA, you'll notice there are lots of similarities between personal tax returns and business tax returns. However, comparing the two by the same scale will give you a good idea of how different the two really are. We're going to do just that below.
For most personal tax returns, T1 General or a variation of it is the standard tax form to choose. When you open a business, it opens a host of new and unique tax forms to choose from.
There are also tax forms for payroll taxes, territory and province taxes, and good and services taxes.
Not all personal and business tax rates are the same. For example, if you are a sole proprietor, you have a personal tax rate for any self-employment income you earn. This can start at 15% and go up to as much as 33%.
If you work for an employer and get a paycheck every week or every other week, they take taxes out. They withhold Federal taxes for the Canadian Pension Plan. Come tax time, all you do is report your earnings and the amount of taxes they withheld.
If you have a business that is a corporate entity, you might get a special income tax rate reserved for formally established corporations. These rates vary as well. However, the more money your business generates for you, the higher tax bracket you enter.
Tax rates for corporations vary from 15% to 33%. Many provinces or territories also require corporations to pay a corporate income tax too.
It's difficult to claim write-offs on your personal income tax return.
Business can deduct a host of expenses on their taxes. If you work out of your home and you have a dedicated home office that you use for nothing else, you could claim it as a home office deduction. If you drive your own car between worksites and on business trips, you could claim a vehicle deduction. Business startup costs up to $5,000 are deductible and you can also claim 50% of your business-related entertainment, meals, and medical expenses.
Do you need help with your personal tax return or business tax returns? Maybe you have questions or concerns. Either way, get in touch today!