S. J. Kelley

Registering a business, deducting expenses

As I contemplate purchasing some more software for my novel pursuits, I’m starting to seriously consider officially setting up a business so I can claim all these expenses. Altogether it will cost $175 to have an official home based business in my city. Ouch. But I do have to do it at some point, and it’s a one-time fee, so better to pay it now than when my dollars aren’t worth as much due to inflation. Also, going by the CRA’s definition, my business is already technically started because I know what I’m going to do and have been making steps toward it on a regular basis, so I guess I already have a home office? Of course, still making product so no sales yet. Not sure what my city defines a “start” as, but I’ll register soon regardless.

I’m kind of sad that I didn’t read through the CRA stuff before I filed my taxes. Last year I purchased a lot of writing books and software to do outlining and that all would have been tax deductible. I could go back and modify my return, but that’s a really big undertaking. Plus I think my big push in January is a good way to define the start of the business (seems to match the following from the CRA: “In order that there be a finding that a business has commenced, it is necessary that there be a fairly specific concept of the type of activity to be carried on and a sufficient organizational structure assembled to undertake at least the essential preliminaries.”). Anything in this tax year is game now that I have my head on straight! So far I have some writing craft books, a marketing course, and hopefully software if I can convince my husband of the expense, which looks dismal at the moment, heh.

The good news is I won’t have to register for any tax account, since I’m not earning more than $30k a year on this… ha! Hopefully I’ll have that problem at some point. But even so, I don’t sell the books directly, so not sure how this would work (the retailers would collect the tax so don’t see why I would need an account). I’m sure there’s some process for commissioned pieces in there, but I’ll open that can of worms if I ever get there.

Coming back to the topic of business registration: It appears that Canada does not have the LLC option of our American counterparts to protect our personal belongings should anything terrible happen in this process. The only choice I can go for for liability protection is a corporation, and the thought of corporate taxes is, quite frankly, terrifying. It appears the corporation would pay tax at about 11% for a Canadian-controlled private corporation (CCPC) claiming the small business deduction, and I think I would get paid as an employee and that would be taxed for income taxes. So double taxes? Confusing. In any case, the CCPC would function as it’s own “person” so I wouldn’t be able to deduct my expenses off my personal taxes. I think I’ll stick with sole proprietor (or partnership if my husband decides to get on board) for now, and if I become immensely successful I’ll look into this further.

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