Dealing with Business Debts When Self-Employed
As the digital revolution continues to change the way we operate, an increasing number of people are choosing to work on a self-employed basis.
With more than 2.9 million people registered as self-employed in Canada, at least 15% of the national workforce are running their own businesses or making money as sole traders.
Although being self-employed can give you the freedom to be your own boss and do something you love, it can also be a stressful and lonely role.
When it comes to your finances, being self-employed adds a whole extra layer of complication to matters.
As well as dealing with your own personal debts, you’ll also need to manage any business debts which accrue.
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How company structure affects your debt liability
If you decide to launch your own business, you should consider the corporate structure you choose carefully.
Being a sole trader can be one of the most flexible ways to run your own enterprise, but it means that your personal finances are intrinsically linked to your business financial transactions.
When you set up a limited company, however, there is a distinct gap between your own personal financial situation and the company’s profits, assets and liabilities.
While being a sole trader may be the right option for some people, setting up a company could be the most sensible option for others.
By considering your financial standing and the need to protect any personal assets when starting your business, you can determine which type of corporate structure suits you best.
Dealing with tax debts when you’re self-employed
When you’re self-employed, you’ll be responsible for managing your own tax liability and paying your tax bills on time.
Although you can hire an accountant to manage these aspects of your business for you, you’ll still be ultimately responsible for the tax returns that are submitted.
Tax law and regulation can be extremely complicated, so it’s not surprising that many people find it difficult to grasp all of the different rules that can apply.
While there are many tax breaks available, knowing when and how to use them successfully can be tricky.
Due to this, many self-employed people inadvertently run up large tax bills, particularly in the first few years of running their own business.
If you’re used to being an employee, for example, you may simply assume that your tax contributions are taken automatically, as they are when you’re employed by a company.
If you don’t regularly save or put money aside to pay your taxes, you could be hit with a hefty bill at the end of the financial year.
Similarly, if you inadvertently file your tax return incorrectly or miss out some of the required information, you could face late filing charges, as well as an increased tax bill.
Getting tax debt help
Depending on how much tax you owe, you may want to seek out debt resolution services.
By learning more about being self-employed: dealing with business debts, you can access the most suitable debt solutions.
If you owe tax debt, for example, you’ll find that many of the options that apply to standard consumer debt, like credit cards, aren’t available to you.
That’s because there are stricter rules regarding government-related debt, like taxes and student loans.
However, there are still a number of ways you can manage your liabilities and handle your debts.
If you discuss your issues with the Canada Revenue Agency, for example, they may agree to a reasonable repayment plan.
This could allow you to pay off your tax bill in manageable installments, without any negative impact on your day-to-day lifestyle or your business.
Alternatively, you may want to explore the possibility of filing a consumer proposal or bankruptcy.
With assistance from a licensed insolvency trustee (LIT), you could discharge some or all your debt using these methods.
Furthermore, a consumer proposal or bankruptcy won’t just deal with your unpaid tax liabilities.
Both consumer proposals and bankruptcy can include standard consumer debt, such as loans and credit cards.
If you have an increasing amount of debt that you’re unable to manage, filing for bankruptcy as a self-employed worker could be a viable option.
Before you make any decisions regarding your finances, however, it’s important to access personalized advice.
Contact Bankruptcy Canada Now
To find out more about the options available to you if you’re self-employed and in debt, talk to a licensed insolvency trustee today.
At Bankruptcy Canada, we’ve helped more than 100,000 people overcome debt problems and we can help you too.