Calculating The Net Loss Or Profit For Your Business Tax Return

It’s getting to the end of tax season. Doing your taxes if you are self-employed or run a business can be a lot more complicated than doing your personal taxes. One of the main things you need to do is to calculate the net profit or loss of your business, as that can have a big impact on how much you pay or get in return. Here’s our quick guide to help.

business tax return

Determine Income Type

The first thing you need to do is to determine your Income Type — you’ll need to do this if you own a business or are a self-employed professional. If you have both a business and a professional income you will need to fill out two of the same T2125 forms when doing your taxes. You can consult the tax guide booklet for a full list of income types or use the list in your tax software if you are doing it online. The list will be sorted by type of industry, job, and so on. You might not be able to find the precise type of income, in which case pick one that best describes yours.

Next, you’ll need to enter all income that you earned for each type (business & professional). First, the sum total income and then you break it down into categories such as:

  • Gross sales
  • Commissions
  • Fees

Make sure you only calculate each income category for the tax year, including any work in progress earned during that year.

Deduct Your Relevant Costs

Next, you should figure out all the relevant costs incurred by your business or professional work that you can deduct — this does not include expenses, which will come next. Follow the process in your booklet or software to deduct things that reduce your total earnings. This will include things such as:

  • Taxes (provincial or federal)
  • Discounts
  • Cost of goods or services sold

Run through all of them and use the total deduction amount along with your total income calculated above to calculate your gross profit. This should be entered on line 8519. Figuring out what you can deduct, and by how much, can be tricky. If you are at all unsure about this part you can contact a tax expert or your business accountant to advise you.

Calculate Your Business Expenses

The third step is to calculate all expenses incurred as a result of operating your business or working as a self-employed professional. This can include a broad array of things, such as the following:

  • Advertising — the specific type and media will determine how much you can claim
  • Meals and entertainment — any cost for food and parties or events held with a business-angle, including taking your client golfing or to a sporting event
  • Travel — including road trips, flights, public transit, and hotel accommodation
  • Use of home expenses — depending on the exact use of your home for business-related work, you can claim varying amounts of your rent, utilities, and equipment purchased for work

There are some other categories as well, and how much you can claim in expenses depends on the specific nature of the expense and the context for which you incurred it. This can be a tricky part to complete in a similar way to calculating your deductions, so don’t be afraid to seek a professional consultation.

Calculate Your Final Net Income or Loss

With all of the above figured out, you can now calculate the final net income or loss of your business. First, you subtract the expenses you claimed from your total gross profit. Then you subtract final adjustments, such as use-of-home expenses, to finally calculate your final net income or loss. Make sure that for all deductions and expenses that you have receipts and documentation to back up what you claim in case you are audited.

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