I Owe $30,000 to the Government
March 15, 2007 Posted by Tyler CruzJust over a week ago in my post on taxes, I had mentioned how I was fearing the yearly trip to get my taxes done. On Monday, when I went to see my accountant, my fears were met.
For tax preparation, I had spent the previous evening going through my receipts of the previous year and gathering and printing all of my accounting files from private ads and 3rd-party ad networks. Since I’m an affiliate and member of literally dozens of various ad networks, this took quite a while.
Fortunately, my meticulous record-keeping and decent accounting paid off as usual and made things easier for both my accountant and I. Now, I could definitely keep better records, my current system is far from perfect, but then I’d start feeling more like a secretary than I would an entrepreneur. No offence to secretarys.
Anyhow, seeing as we’re in the midst of tax season right now, my accountant’s company is swamped with work and I won’t see the exact results of my taxes for another several days. However, I asked for a rough estimatation of what I’d be looking to pay this time around.
First, my write-off’s. I must say that I was very surprised in how much I spent in outsourcing and business-related expenditures. I spent around $9,000 USD from PayPal, $10,000 CDN from my receipts folder (Western Union, 2CheckOut, computer, laptop, etc.), $7,000 in rent, and $2,000 on my dedicated servers, totalling around $30,000!
Now, I should mention that items such as my computer and desk are not 100% write-off’s. Rent, also, is only proportionately determined as to what can be written off, in other words, a very small amount. However, I was surprised that everything else was a 100% write-off, which is definitely good in helping lower my taxes.
Another surprise was how much I actually earned in 2006. Without actually calculating anything, I had roughly estimated it would have been $100,000 CDN, but it was actually quite lower, only around $85,000. I think I had miscalculated because I didn’t actually receive my cheque for the large domain brokerage sale until February, which would have then put me at $100,000.
Anyhow, my accountant told me that my estimated amount owing will be around $20,000. Ack! Last year I only owed $200! Fortunately, while I could definitely be smarter with my money, I was smart enough to put money away each month into a taxes account. Looking at my bank statement right now, it turns out I was pretty close with estimating what I might have to pay, and am only a few thousand dollars short in my taxes account, which is fine, as I can still pay the amount from my main or chequings account. You should also be aware of what is a vat inspection and that VAT officers will visit your business to conduct this.
So, luckily I have the money all ready to give them, and am just glad that I had been saving the money away all year.
Thankfully though, due to my large expenditure write-off’s my amount owing is far less than it could have been; I could have easily owed $40,000 or more.
Guess what? The bad news doesn’s stop at the $20,000.
Apparantly the CRA, Canadian Revenue Agency, has a rule that stipulates if you ever owe more than $2,000 that next year you will have to pay quarterly, in advance. How do this do this? Well, they basically assume that you will make as much as you did last year, and base the numbers on the previous year’s statement. In my case, since it will be nearly April before the CRA gets my return, there will be no time to do it quarterly anymore and I’ll have to do two lump payments instead. I have already called several philadelphia tax attorneys to help me understand this.
If you factor in that I’ll be paying $20,000 for 2006, that means I’ll have another $10,000 owing right away for the first lump payment for 2007. What really bugs me is that I have to pay for 2007 before actually even earning any money (as far as they know). That’s also money that could be earning interest in the bank or being invested into projects. In the case that I don’t make as much as they estimate, I will get a refund, but still…
Blogger John Chow actually had the same problem happen to him back in August, and now has to pay quarterly in advance too.
I should note though, that for people who work a ‘normal’ job actually have to pay every two-weeks, as the government automatically takes it out of their paycheques before they even see it. That’s why most people get a slight return or else only usually owe a few bucks.
Anyhow, there you have it. Poor wittle Tyler owes the CRA $30,000. Oh, you’ll get your money you dirty bastards, but I won’t go quietly!
10 Responses to “I Owe $30,000 to the Government”
Here in the UK if you are registered as self employed you have to make ‘payments on account’ for the following tax year too. Sure it can squeeze the cash flow but it reduces the big amounts you have to pay come next tax year as you have already paid so much on account. Just keep a tax account as you smartly do, pop around 25% – 30% of your earnings (depending on your expected tax bracket) in there each month and you should be set.
Seen a lot of posts like this lately … after all, it is tax season *sigh*. The rules for US small business are virtually the same … if you have reason to believe you’ll owe $2,000 or more, you must file quarterly payments, in advance. Many folks don’t look at this, especially if they are just running their own business from the basement …. but the tax law doesn’t care. 100,000 employee corporation or one-man-band web publisher the rules are the same.
This is a great program (not a sales pitch or affiliate link, this is the best kind of freebie, written by a guy who cares)
http://www.arachnoid.com/PLCash/index.html
Can’t beat the price, runs on virtually any computer, Windoze or Macs, and only a 725K download … QuickBooks I think needs that much just for the installer program.
Anyway, don’t owe that much, wish I did ….
I use QuickBooks and paid advice from accountants. If I go down, I’m taking some one else with me. 🙂
[…] I have been reading a few blogs of late which talk about tax. Unfortunately if you are making money online, the government will no doubt want a slice of it. Tyler Cruz recently got a shock when he found out his tax bill will come to around CDN$30,000 (that’s around £13,000) due to the fact he not only has to pay his outstanding liability for the past tax year, but he also needs to pay additional tax ‘on account’ for the next tax year. […]
Been there, I hear ya! Perhaps even more frustrating about the advance payments is that if you don’t make them, the gov charges you a late fee! So, you’re paying a late fee on money you don’t actually owe yet. Perhaps this is a business model that we could put to use for our own business… not! I can’t imagine I’d stay in business with a policy like that one. Leave it to a gov or telco.
Ridiculous. I was thiking of living at Vancouver, but now that I see the ridiculous costs of life (housing prices are a joke) and horrible taxes I am having second thoughts. Who would want to live in a place where on average 70% of your income goes to pay your mortgage?
[…] I Owe $30,000 to the Government […]
That could’ve been much more frustrating than it was.
Thing is, in the UK, if you spend a lot of money during the year, you’re likely spending an awful lot of money on VAT.
Then you get your tax bill, and have to pay that on top.
By saving and preparing for your tax payments, rather than spending money more recklessly and trying to scrape taxes together later, you’re avoiding paying double the tax simply for living.
Here in the UK if you are registered as self employed you have to make ‘payments on account’ for the following tax year too. Sure it can squeeze the cash flow but it reduces the big amounts you have to pay come next tax year as you have already paid so much on account.
Here in the UK if you are registered as self employed you have to make ‘payments on account’ for the following tax year too. Sure it can squeeze the cash flow but it reduces the big amounts you have to pay come next tax year as you have already paid so much on account. Just keep a tax account as you smartly do, pop around 25% – 30% of your earnings (depending on your expected tax bracket) in there each month and you should be set