How Self-Employed People Should Prepare For Tax Season
For many people, they’re used to dealing with a single employer so when it comes time to do your taxes, things are relatively simple. However, if you freelance on the side or if you’re self-employed full-time, things can be a little bit more intimidating since you’re dealing with more paperwork.
Filing taxes as a freelancer is only tricky the first time you do it since everything is relatively new, but as someone who’s been freelancing for years, I can tell you it gets easier every time you file. The trick is to prepare yourself for tax season throughout the year and make sure you have a game plan if things get a bit too complicated.
Related: Can taxes affect your credit score?
Track your income
It doesn’t matter if you’ve made $100 or $100,000 in freelance income over the past year, you need to track all of it. Not everyone you invoice will be providing detailed tax slips, so you need to have some form of bookkeeping so you know how much money you’ve made.
This is a pretty easy thing to do as you can simply just write down everything in an Excel or Google Sheets file. Alternatively, there’s software such as QuickBooks Self-Employed which can help you manage your income and expenses.
Keep in mind that as soon as you earn $30,000 in a calendar year, you’re required to register for a GST/HST number. From that point on, you need to charge your Canadian clients any applicable taxes. The Government of Canada does not alert you of when it’s time to register which is why you need to track your income.
Keep all of your receipts
The nice thing about being a freelancer is that you’re allowed to claim some expenses as long as they’re related to you running your business. Of course, you can’t claim these expenses unless you have a receipt so make sure you hang onto everything or take pictures of them before throwing them out. Some things you can expense include:
Business start-up costs
Fees, licenses, and dues
Meals and entertainment
Motor vehicle expenses
Telephone and utilities
It’s important to note that not every applicable expense gets claimed the same way so it’s important for you to visit the Government of Canada website to see what business expenses you can claim and how much you can claim.
One important thing to know also is that even if you don’t use 100% of the expenses for business purposes, you can still deduct the portion that you do. For example, let’s say 20% of the time, you use your cell phone and internet for business purposes. Well, that means you can claim 20% of those costs when you file your taxes.
Filing your taxes
Now that you’ve got your income logged and your expenses figured out, it’s time to actually file your taxes. Before you do that though, you need to decide if you’re going to do it by yourself or if you’re going to get some help
Doing taxes yourself
Filing your taxes yourself can be quite easy since software walks you through the process. If you get stuck somewhere, it shouldn’t be too hard to find the solution via the software’s FAQ or search.
Have someone file it for you
If you prefer someone to file your taxes for you, you could use one of those services that pop up in malls during tax season. Alternatively, you could use TurboTax Self-Employed, which is a tax return service that’s done completely online. TurboTax is a great solution for people who want to work with an expert experienced with self-employed individuals.
Use an accountant
If you’re looking for face time and want someone who can advise you about your taxes moving forward, working with an accountant could be worth it. They’re the most expensive option, but you’ll basically have access to an expert that can answer any of your questions and will understand your business after you’ve worked with them.
As you can see, there’s no reason to panic when it comes to tax season. Filing your taxes is easy as long as you have all your paperwork in place. Even if you don’t, you can work with an expert or an accountant who can help guide you through the process.
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