Are you employed, and you operate a side business at the same time? Good for you! If you have been doing that for more than one year, then you already know that your tax filing can be a little more tricky, but you also know that TurboTax Self-Employed has absolutely everything covered so that you can report your incomes, and maximize your deductions on the side-business.
Whether you want to complete your taxes yourself, or if you would like a tax expert to review your return before filing, or if you just want a tax expert to complete your return for you, TurboTax Self-Employed helps with all of these scenarios.
If this is your first year filing a Canadian personal tax return to report your T4 income, and including a T2125 to report your self-employed income, then you need to understand that TurboTax, you don’t have to worry about filing your return to the Canada Revenue Agency (CRA) – we’ve got you covered – but you do have to prepare in advance, and in order to do that, we have some tips and techniques to help navigate having your foot in these two tax worlds.
More Income, Higher Tax Brackets
Taking a look at the current tax brackets for individuals and you will see that your self-employed income might bump you up into a higher tax bracket, and that is GREAT! That means you are earning money, but it doesn’t necessarily mean you will be paying considerably higher taxes, because where there are a few ways to reduce personal taxes owing – such as donations, contributing to RRSP’s, etc., for self-employed taxes, the income you earn is “Business Income” and there are over 400 tax credits and deductions available which might be applicable to your self-employed situation and instead of reading over each and e4very one, you can use TurboTax to file your tax return instead. TurboTax will walk you through the tax filing process, starting with your personal income, and then your family situation before focusing on your self-employed income. From there, it will continue to ask a series of questions to determine what you might be eligible to claim before taking you to the deductions and credits and ensuring that you claim all that you are entitled to.
Canada’s Income Tax Brackets for the 2019 tax year were:
- 15% on the first $47,630 of taxable income, plus
- 20.5% on the next $47,629 of taxable income (on the portion of taxable income over 47,630 up to $95,259), plus
- 26% on the next $52,408 of taxable income (on the portion of taxable income over $95,259 up to $147,667), plus
- 29% on the next $62,704 of taxable income (on the portion of taxable income over 147,667 up to $210,371), plus
- 33% of taxable income over $210,371
Relating to your T4-income, the taxes deducted by your employer’s payroll department accounts for only the income you earn at that job, which means that adding in your self-employed income (after removing the eligible deductions) is going to impact your bottom line.
But don’t write a check just yet. Remember to maximize your Registered Retirement Savings Plans. Putting money into an RRSP is the single best way to reduce your taxable income while saving for retirement.
Don’t Forget About the Canada Pension Plan
Self-Employed Canadians are required to contribute to the Canada Pension Plan (CPP) for themselves, and for their “employer” amount. What that really means is, that when you work for an employer, only 4.95% of your pay cheque is withheld by your employer and sent to the CRA for your CPP contribution. (For 2019, it is 5.1%). Your employer matches that amount and sends their share to the CRA as well on your behalf, which means that for 2018 your contributions to CPP are 9.9%.
As self-employed, however, you are required to pay the full 9.9% on self-employment income for 2018 (It increases to 10.20% in 2019).
The good news is that you only have to pay into CPP for the first $55,900 you earn in 2018 ($57,400 in 2019). If you make that much at your regular job and your employer is already deducting CPP, you won’t have to pay extra on your self-employment earnings.
Plan Ahead for GST/HST
Employees seldom have to think about the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) that must be charged to clients unless they work in sales or accounting. As an independent contractor, however, this might be something you should start thinking about. When your independent sales reach $30,000 in four consecutive calendar quarters, or in any single quarter, you’re required to register for GST/HST and begin paying it – although it might make sense to register voluntarily before hitting that threshold, in order to get back the GST/HST that you have been paying for goods and services to be used in your business for the purpose of earning income.
Self Employed Income = Self Employed Deductions/Credits
It’s not all bad tax news for you as a result of your self-employed income because you can deduct business expenses from your self-employment income. Examples of these expenses includes; travel related to your self-employment work (don’t include any travel to or from your place of full-time employment), as well as a portion of your utilities if you have a home office, as well as office supplies, advertising and so much more.
Remember to keep the receipts all the time, and especially if you take clients out to dinner, or if you pay for gasoline. These are two common areas of verification by the CRA.
Take Your Time – Just Not Too Much Time
If a portion of your income comes from self-employment, the CRA gives you a few extra weeks to submit your tax return; your tax forms for 2018 are not due until June 17, 2019, instead of the usual April 30th deadline, however, if you owe taxes, a payment is still due by April 30th.
If you owe money, you’ll have to pay interest if you miss the April deadline.
If you file late, you’ll be assessed a late-filing penalty.
All-in-all, don’t be too alarmed about the additional income earned because you might owe additional taxes. Be proud of the fact that you have earned additional income to supplement your regular income and help to either pay off debts, or purchase items, or stock away for a rainy day.
Canadian Tax Expert @ TurboTax. Former CRA employee.