While reviewing your business tax needs, you may have come across the following terms: business income and professional income. Although they sound similar, these two types of income are actually different.
These two types of income are both found on the T2125 Tax Form, which is designed to calculate your total income after expenses. This form is for sole proprietors or partnerships. It does not apply to you if you have a corporation or are an employee.
Let’s explore why and how business income vs. professional income is different.
What’s the difference between business income vs. professional income?
Business income is income earned by a business from its regular operations. This includes income from sales of goods or services, interest, dividends, rents, commissions, etc. You likely have business income if you sell products or services.
Professional income refers to the income generated by individuals who provide services based on their specialized knowledge, skills, or expertise in a particular field.You likely have professional income if you are a lawyer, engineer, CPA, doctor, dentist, or similar governed profession.
You may have both business income and professional income and yet not be incorporated. The term business income and professional income do not necessarily mean that you have a corporation.
What do I do if I have business income and professional income?
If you have both types of income, or more than one, you will need to use separate T2125 forms to record each individual stream of income from a different business or profession. You can also take advantage of ReInvestWealth’s free accounting software to better track your income and expenses and make tax filing as simple as possible.
What do I do if I have a corporation?
If you own a corporation, you will not need to report your income on the T2125 form. Instead, you’ll need to complete your T2 Corporate Tax Filing in addition to your T1 personal tax filing.
If you’re in Quebec, you will also need to file a CO-17 Corporation Income Tax Return.
If you’re in Alberta, you will also need to file an AT1 – Alberta Corporate Income Tax Return.
Need help?
Taxes can be overwhelming, which is why ReInvestWealth offers low-cost support for your sole proprietorship or corporation. You can book a free consultation with a CPA to get started.
And for a limited time, If you have an incorporated business, take advantage of our $599 Corporate Tax Filing special offer when you sign up for our AI Bookkeeper Plan.
