Ask the Expert: Can I File my Freelance Taxes the Same Way I Always Have?

How is filing as a freelancer actually different?

Once you earn freelance or self-employed income, the CRA expects you to file your taxes the way a small business owner does, even though you are still collecting a T4 from your day job. You report the income from your design work, subtract the expenses you spent earning it, and the difference is your taxable self-employed income. That number gets added to your regular return alongside a completed Form T2125, Statement of Business or Professional Activities, which is the form that calculates it for you, and it sits on the same return as the T4 income from your day job. The CRA adds everything together to get your total income for the year, rather than taxing each source on its own. That cuts both ways: if your design work posts a loss in a given year, meaning your expenses came in higher than what you earned, that loss can reduce the tax owing on your T4 income too.

What records do I need to keep?

Every receipt and invoice tied to your design work. The CRA can ask for that documentation at any time, and if you are audited without it, your claims get disallowed along with penalties and interest. Keep a folder, digital or otherwise, and add receipts as you go instead of hunting in April. TurboTax Self-Employed has a receipt tracker built in, so you can photograph a receipt the moment you get it. Self-employed filers also get a longer deadline to file, June 15 instead of April 30, though any tax owing is still due by April 30.

Why might I owe more than I expected?

Nobody withholds tax from freelance income the way an employer does, and you cover both the employee and employer portions of CPP and EI yourself. EI works differently. Paying into it is optional when you are self-employed. You can choose to register for the EI program for self-employed people through Service Canada, which covers benefits like parental, sickness and caregiving leave, but it will not pay you anything if your freelance work simply slows down, and registering is entirely your choice. If your marginal tax rate is 30 per cent, set aside 30 per cent of what you earn as you go so April does not surprise you. If you end up owing $3,000 or more to the CRA this year and in either of the past two years, the CRA will also require you to pay in quarterly instalments going forward instead of one lump sum.

Can I claim a home office?

Yes, if you work from home you can claim a share of costs like heat, hydro, water, phone, home insurance, mortgage interest and property taxes, based on how much of your home’s square footage the office takes up. A home office that is 15 per cent of your space lets you claim 15 per cent of those bills. Just keep the deductions reasonable and in line with CRA rules.

Should I still contribute to an RRSP?

It depends on your day job. If your employer does not offer a workplace pension, an RRSP contribution is well worth it, since freelance income does not come with any retirement plan of its own. If your day job does come with a pension, your RRSP room is already reduced to account for it through what the CRA calls a pension adjustment. Either way, a contribution still lowers this year’s tax bill and grows tax free until you withdraw it, ideally in a year when your tax rate is lower.

What if my freelance work grows into something bigger?

If you ever hire an employee or your revenue passes $30,000 in a year, the rules change again. You will need a business number from the CRA, plus a payroll account if you have staff or a GST/HST account once you cross that revenue threshold. Both can be set up online through the CRA, so keep your registration details current. And if you ever destroy old business records rather than keeping them, file Form T137 first so the CRA has a record of it.

Takeaway for readers: track your income and expenses as you earn them, file your T2125 alongside your return and set money aside for taxes throughout the year instead of waiting for the bill. TurboTax Self-Employed finds the deductions, including a full list of small business tax deductions, and fills out the T2125 for you. If your situation gets complicated, TurboTax Expert Assist or TurboTax Expert Full Service can bring in a real tax expert to help.

Freelancing already means managing your own cash flow. Filing your taxes should not add to that stress. TurboTax is built to catch every deduction you are entitled to, so you keep more of what you earned.

Get Started