Whether you’ve picked up a side gig or have started freelancing full-time, being your own boss comes with added financial responsibilities. For many self-employed Canadians, managing money isn’t an easy task. The good news is that with just a few steps, you’ll be managing your finances like a pro in no time.
1. Come Up with a System
Keep track of your income and expenses from your freelancing work is simple if you have a system. And it doesn’t have to be anything elaborate or complex. If you’re a freelance writer who only contracts with a few companies, your system could be as simple as two shoe boxes – one for expense receipts and one for money received. If your freelance work involves multiple clients, numerous different expenses, or you’d like to keep on top of your expenditures a bit more, consider using software like Quickbooks to keep track of your income and expenses.
2. Use Tools and Apps
From setting your phone’s calendar reminders to remind you to remit your GST/HSTpaperwork to apps that automatically send invoices by email, the online tools available for freelancers are endless.
If you’re claiming a business-use-of-home deduction on your tax return, sign up for online billing for utilities. Being able to access your hydro receipts online beats sifting through a sea of year-old paperwork at tax time.
3. Save Some for Taxes
Because you’re self-employed, your tax situation has changed. There’s no employer deducting income tax or Canada Pension Plan premiums from your freelance income. Any tax or CPP amounts owed are calculated (and due) on your annual tax return. So, while you may think that your side gig was earning lots of extra cash for you all year, you may have a large tax bill owing on that income.
In your first year as a freelancer, it’s hard to anticipate what your tax bill will be. It’s a good idea to set aside 25% of your income throughout the year.
After the first year of filing a tax return as a freelancer, you’ll have an idea of what’s in store for years to come and how much to set aside. If you end up owing more than $3,000 in taxes, the Canada Revenue Agency may require that you make quarterly installment payments to prepay next year’s balance owing.
4. Ask for Help
With the on-demand economy growing every year, there are lots of avenues for support. Check out your local Chamber of Commerce, meet with your banker, drop into a centre for small business, network with other freelancers in online groups. Other small business owners have been where you are and can offer loads of advice for your particular line of business. Take advantage of their knowledge and then pass along what you’ve learned to the next new kid on the block.