Entrepreneurship

Tax Laws for Being Your Own Boss

Being your own boss definitely has its advantages — flexibility, upward mobility, the chance to take your business in the direction you choose — but at tax time, being self-employed can be a challenge. Here’s a look at what’s expected of you when you go to work for yourself.

Self-employed people must pay self-employment taxes

As a business, you are required to pay self-employment taxes, which include Social Security and Medicare taxes. These must be paid by anyone who works for himself or herself and earns $400 or more in 2017.

Self-employment taxes are assessed on a percentage of your net earnings. In order to calculate and pay this tax, you must first figure your net profit from your business.

Schedule and keep current with estimated tax payments

Our tax system is pay-as-you-go. If you work for someone else, your boss withholds a percentage of your paycheck for taxes and sends that money to the taxing authorities on a regular basis.

As a self-employed person, you have the responsibility of paying quarterly estimated tax payments for both income tax and self-employment taxes. If you fail to make these periodic payments or you underreport your income, you may be subject to penalties and interest.

 Take advantage of all available business tax deductions

As your own personal employer, you can write off far more business expenses than employees even dream about, and you’ll want to take advantage of every one of them. The IRS defines deductible expenses as any and all expenses that are ordinary and necessary for your business. A few common business deductions you won’t want to miss include:

  • Expenses related to the business use of your home, including:
    • Certain amount of rent
    • Utilities
    • Phone
    • Internet service
  • Business use of your vehicle based on business automobile expenses or the standard IRS allowable mileage rate for your tax year.
  • Depreciation of some property and equipment you purchase.

 

 

WORKING FROM HOME…IS IT RIGHT FOR YOU

You may be drawn to the advantages of working from your home.  Ask yourself a few questions to determine whether having a home-based business is right for you.

  • Do you have the self-discipline to motivate yourself, even when business is quiet?
  • Might you have difficulty setting boundaries between your personal life and your business role? Will you face interruptions from family and friends?
  • Is there enough room for the resources you need, like special equipment or employees?
  • If your business is successful, will there be room to expand? How will you address this when the time comes?

When you decide you are ready to launch your home-based business, consider the following suggestions:

  • Review provincial and federal health, safety and taxation regulations related to your business.
  • Check municipal by-laws and determine whether your area is zoned for operating a business, particularly if you plan to deal with the public or have non-family-members working out of your home.
  • Designate a specific area of your residence as your workspace (as removed as possible from the ebb and flow of your household activities).
  • Try not to let chores or other distractions take you away from your work and interrupt your productivity.
  • Avoid letting the less formal setting interfere with your professionalism.
  • Be available to your clients by keeping a consistent schedule and getting back to them in a timely fashion.
  • Be aware that some home-based business opportunities may be fraudulent.

source: https://canadabusiness.ca/starting/choosing-and-setting-up-a-location/home-based-business/

 

 

 

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