Do you owe more than $26k, not including a mortgage?

[Tom]

internet is too hard to determine what portion is for business and what portion is for home (who sits and counts packets?), so that one's always allowed as a full bill.  Mobile phone is pretty easy to claim as needed for the business, since you have a home phone that you use for all your personal calls.  Claim 'em both, they'll hold up to scrutiny if you're audited (I have yet to be, it's pretty rare to get randomly audited).  The TV on the other hand would be difficult to prove you need for your business, unless you have a different TV somewhere else in the house that you can say you use for personal use.  But they'd call BS on that, I'm sure.

Ah OK. The TV I have is included with my internet. I asked for one, got both. But if i ask its only $10 of my bill. At least that's what my bill would be reduced by if I told shaw I didn't want it. Originally you weren't able to reject the TV bit, but enough people complained. You have to explicitly tell them you don't want it, they don't actually advertise you can do that I don't think.

[Thorin]

I have a combined bill, too, but Shaw does break it down for you if you look at the details on their website aafter you log into My Account and go to the billing section.

Remember that Canada Revenue Agency works on the honour system, though, where they expect you to only claim what's reasonable under threat of getting audited and having to explain why you claimed something.  So if you just said total bill minus ten dollars for cable, and they audit you, they might consider this a reasonable claim.  And like I said, random audits are rare - most businesses get audited because someone squealed on them, usually because bosses who cook the books are typically also asshats who piss off their workers.

[Tom]

I have a combined bill, too, but Shaw does break it down for you if you look at the details on their website aafter you log into My Account and go to the billing section.

Remember that Canada Revenue Agency works on the honour system, though, where they expect you to only claim what's reasonable under threat of getting audited and having to explain why you claimed something.  So if you just said total bill minus ten dollars for cable, and they audit you, they might consider this a reasonable claim.  And like I said, random audits are rare - most businesses get audited because someone squealed on them, usually because bosses who cook the books are typically also asshats who piss off their workers.

This is what my bill says:

Current Monthly Services (13-Sep-12 to 12-Oct-12)
Personal TV + Broadband 50 89.90
Total Current Monthly Services $89.90

Basically internet comes with PTV, their website won't even let you remove TV when personalizing your plan. Most you can do is select basic/personal TV.

[Thorin]

I browsed to http://www.shaw.ca/, clicked My Account, entered my username and password, clicked Sign In, clicked Bills and Payment, clicked View My Bill, clicked View Bill, and got a web page with the attached details on it.

If it doesn't split it up for you like that, then you can look under Bills and Payment -> View Account History, that's where everything's completely broken down the same as how the accountants see it.  And if even that doesn't show the different charges, then just claim your whole Shaw bill because at that point you've done your best to try and separate it and can't.

[Thorin]

Also, I couldn't get Personal TV + Broadband 50 for $89.90; the lowest I could get it was $104.90 ($15 more).  Nice job on getting the good deal.

[Tom]

Also, I couldn't get Personal TV + Broadband 50 for $89.90; the lowest I could get it was $104.90 ($15 more).  Nice job on getting the good deal.

Yeah, I got this plan just after they redid my line, I guess they wanted me off the business extreme plan. For the first 6 months it was $49 or something insane. Then was $79 or something for a while. They keep upping the price of everything a few dollars every couple months.

If it doesn't split it up for you like that, then you can look under Bills and Payment -> View Account History, that's where everything's completely broken down the same as how the accountants see it.

Aha! There it is.

13-Sep-12   050-220   Billing-Additional Outlets   5.00
13-Sep-12   050-1112   Billing-Broadband 50   70.00
13-Sep-12   050-1063   Billing-Personal TV   30.95
13-Sep-12   050-888   Billing-Bundle Discount   -16.05
13-Sep-12   050-501   Billing-Shaw Digital Terminal   12.95
13-Sep-12   050-882   Billing-Digital Terminal Promo   -12.95
13-Sep-12   050-341   Billing-WiFi Modem   3.95
13-Sep-12   050-341   Billing-WiFi Modem   -3.95
13-Sep-12   050-970   Billing-G.S.T.   4.50

But if I ask shaw to remove the PTV, it only reduces my bill by $10. Even though it should probably be $30 since thats what they count it as.

[Thorin]

Do you have two outlets in your house?  If not, tell them they're charging you for an extra outlet that you don't have.  Also, for your business expense write-off, your internet is clearly $70, and the bundle discount is clearly applied to your tv bill.  So claim the full $70 + $3.50 GST (internet's portion of the GST on the bill).  That's $882 a year you don't have to pay tax on, yay!

[Tom]

Do you have two outlets in your house?  If not, tell them they're charging you for an extra outlet that you don't have.  Also, for your business expense write-off, your internet is clearly $70, and the bundle discount is clearly applied to your tv bill.  So claim the full $70 + $3.50 GST (internet's portion of the GST on the bill).  That's $882 a year you don't have to pay tax on, yay!

You're supposed to get four so I don't know why I'm getting charged for more. I /could/ technically have three, but they aren't hooked up (on either end). But yeah, the $880 is kinda nice.

Ok so I was curious about the various tax brackets, and found this. You mentioned $8000 in deductions, what was the reason for that number? It doesn't seem to bump me to the lower bracket. Was it just to reduce taxes a little (of course 2400 is nothing to sneeze at)?

[Thorin]

Okay, so lets go with round numbers: $50,000 gross revenue billed to the client (and paid), $10,000 in expenses.  If you made $50,000 as a salary at a job, you'd pay tax on all of it.  But because you're self-employed (i.e. running like a business), you pay tax on what's left after you subtract expenses from gross revenue; that is, you pay tax on $40,000 ($50,000 - $10,000).  So that's 22% federal tax and 10% provincial tax that you don't have to pay on that $10,000, or $3,200 less in taxes owing.

See, if I get internet and TV for $89.90 a month, I have to pay that out of after-tax dollars, so I actually have to make $118.67 to pay the bill.  This is where self-employment really rocks - so long as you can find a job where normal life expenses become a business expense.

By the way, it sounds like you're not understanding tax brackets correctly - you pay the bracket rate only on the income that falls within that bracket.  So if you make six million a year (apparently your name is Hall, Taylor Hall, and it's next year and the lockout is already a thing of the past) you would pay 15% on the first $42,707 dollars, 22% on the next $42,707 dollars, 26% on the next $46,992 dollars, and 29% on the remaining $5,867,594 dollars.  The bracket rate doesn't get charged on all your income, only on the income that falls within that bracket.

A more reasonable example: if you make $60,000, you pay 15% on the first $42,707 and 22% on the remaining $17,293.  If you can write off $10,000 in expenses, you pay 15% on the first $42,707 and 22% on the remaining $7,293.

So yes, there are brackets, but imagine your annual income being split into separate piles with each pile representing a bracket and the piles filling up to the bracket maximum from the lowest tax rate to the highest.

By the way, the way taxes are figured out is take your annual income (remember, for self-employed that's gross revenue - business expenses), split into the piles (brackets), figure out the amount of tax owing for each pile (amount of income in that bracket * bracket rate); this is your gross tax.  Now figure out all your tax credits (basically, things the government says you don't need to pay tax on).  Subtract your tax credits from your gross tax to get your tax due.  So what tax credits are there?  Everyone gets a basic personal amount of $10,822 this year, and anything you pay into CPP, and other things as well like disability credit if you qualify).  That's for federal tax; provincial tax in Alberta works the same, except there's only one bracket and it's 10%.  The basic personal amount is $17,282 this year in Alberta.  Hmm, that's kinda wordy.  Boiled down for you (and for anyone employed it works the same way except we start at the Total Income step and pay half the CPP and pay EI at 1.83% on income up to $45,900):

gross revenue (billed and paid) - business expenses = net revenue (aka total income)
total income - RRSP contributions = net income
(net income - $3,500 [min $0 max $46,600]) * 9.9% = cpp due
net income that falls in bracket 1 * bracket rate 1 + net income that falls in bracket 2 * bracket rate 2 = gross federal tax
gross federal tax - federal tax credits (($10,822 basic + cpp due) * 15%) = federal tax due
net income * alberta tax rate = gross alberta tax
gross alberta tax - alberta tax credits (($17,282 + cpp due) * 10%) = alberta tax due
federal tax due + alberta tax due + cpp due = total due

I'll round your billed-and-paid revenue to $60,000, your business expenses to $8,000, and ignore the disability credit since I don't know what it is.  Here's the numbers:

$60,000 - $8,000 = $52,000 net revenue
$52,000 - $0 = $52,000 net income
($52,000 - $3,500) * 9.9% = $46,600 [hit the max] * 9.9% = $4,613.40 cpp due
($42,707 * 15%) + ($9,293 * 22%) = $8,450.51 gross federal tax
$8,450.51 - (($10,822 + $4,613.40) * 15%) = $8,450.51 - $2,315.31 = $6,135.20 federal tax due
$52,000 * 10% = $5,200 gross alberta tax
$5,200 - (($17,282 + $4,613.40) * 10%) = $5,200 - $2,189.54 = $3,010.46 alberta tax due
$6,135.20 + $3,010.46 + $4,613.40 = $13,759.06 due

If you're saving 30% of every cheque, you'll have $18,000 on $60,000.  You'd have $4,240.94 still in your savings account after paying your total due.

Anyway, the point of me saying $8,000 in deductions is because that's how much I figure you should be able to add up for business expenses; these then lower your actual income by subtracting from the gross revenue as described above.

I like numbers

[Thorin]

For RRSPs, if you're considering them, they'll reduce your net income thus if you put enough away you might not have any net income in the second bracket.  Reducing your net income also reduces what you owe for CPP.  Lets say you put $10,000 into RRSPs, this will reduce your net income from $52,000 to $42,000.  Between $52,000 and $50,100, you would be saving the federal second bracket rate and the provincial tax rate.  Between $50,100 and $42,707, you would be saving the federal second bracket rate, the provincial tax rate, and the cpp rate.  Between $42,707 and $42,707, you would be saving the federal first bracket rate, the provincial tax rate, and the cpp rate.  Or less wordy:

$52,000 to $50,100 = $1,900 * (22% + 10%) = $608
$50,100 to $42,707 = $7,393 * (22% + 10% + 9.9%) = $3,097.67
$42,707 to $42,000 = $707 * (15% + 10% + 9.9%) = $246.74

$10,000 put into RRSPs would save you $3,952.41 in payments to the government, so really would only cost you just over $6k.

[Melbosa]

Good sound numbers I say!  Deducting amounts off your total tax payout is one of the great things about tax write-offs of being a contractor or running a business.  I've been doing it for years myself with my own contracting, and yes do not overlook the power of RRSP contributions.

[Mr. Analog]

I roll my tax return right back into RRSP, it's a pretty sweet deal.

[Thorin]

Of course, having a giant RRSP will reduce your CPP and OAS and GIS benefits when you turn 65 (well, 67 now).  I talked about that in another thread: http://forums.righteouswrath.com/index.php/topic,7196.msg63017.html#msg63017.  The funny thing here is that on the one hand RRSPs save you taxes now (that you'll pay when you take the money back out) but on the other hand RRSPs cost you retirement benefits later in life.  If you make over a certain amount, I'm pretty sure the Guaranteed Income Supplement (GIS) and Canada Pension Plan (CPP) get clawed back.  Whereas if you put all that money into after-tax investments you wouldn't officially have any pension savings and therefore be able to get all the CPP and GIS.

I've never done the numbers on it to see what would be more beneficial, though, and the Tax Free Savings Account (TFSA) throws a bit of a wrinkle into it, too.

[Tom]

Thanks Thorin! I think I've read that a few times, and will probably read through it some more to make sure it sinks in

Though I did know about how the brackets work. But my mind does like to "simplify it" by ignoring them (and ignoring the provincial tax and cpp, the amount is somewhat close after). Over estimates the tax, but that isn't really a huge problem (unless I was broke).

Of course, having a giant RRSP will reduce your CPP and OAS and GIS benefits when you turn 65 (well, 67 now).  I talked about that in another thread: http://forums.righteouswrath.com/index.php/topic,7196.msg63017.html#msg63017.  The funny thing here is that on the one hand RRSPs save you taxes now (that you'll pay when you take the money back out) but on the other hand RRSPs cost you retirement benefits later in life.  If you make over a certain amount, I'm pretty sure the Guaranteed Income Supplement (GIS) and Canada Pension Plan (CPP) get clawed back.  Whereas if you put all that money into after-tax investments you wouldn't officially have any pension savings and therefore be able to get all the CPP and GIS.

I've never done the numbers on it to see what would be more beneficial, though, and the Tax Free Savings Account (TFSA) throws a bit of a wrinkle into it, too.

That would be interesting. If you do do (heh I said do do) the numbers please post the results

[Thorin]

Yeah, most people look at the brackets and then forget they're there and then make some ridiculous claim like, "I got a thousand dollar a year raise and my paycheque went down".  I hate when people say things like that, it's so wrong!  I've also heard, "I worked a bunch of overtime but I had so many deductions on my cheque that it was smaller than regular".  1) No it wasn't, it was more, 2) the deductions are so big because the government thinks you're making that amount _every_ paycheque, 3) you're gonna get a bunch of that extra tax deducted back at the end of the year in your income tax return.

Heh, do-do.

We are not immature.