Being your own boss has its share of perks. The freedom to choose your workload, hours, and pay rates is terrific. But running the show also brings a number of new responsibilities, including your taxes. Let’s review some tips for first time freelancers.
1. Don’t be confused by the filing deadline for self-employed individuals.
Generally speaking, tax returns for individuals are due on April 30th each year (May 1 this year as April 30 falls on a Sunday). Self-employed taxpayers actually have until June 15 to file their returns. This means you have an extra 6 weeks or so to submit your return. However, if you owe a balance, the balance due is still due at the regular time April 30 (again May 1 for this year).
This means that even though you don’t have to send in your tax return until June 15, you still have to pay the tax bill on time. Interest starts accruing for everyone, including the self-employed, on May 2nd.
2. Organize before you start.
To make sure you’re not missing any deductions, take some time before your begin your return to label and categorize your receipts. For example, if you claim vehicle expenses, keep all of your gas receipts together and calculate the total gas expense. Do the same for all other expenses such as repairs, parking stubs, etc. so when it’s tax preparation time, you’ll have all of the legwork done. You’ll also be able to get an idea of what (if anything) you’re missing and have time to track these items down.
3. Your personal tax return and your small business tax return are actually just one return.
If you’re self-employed and your business is not an incorporated company, your personal tax return is also your business tax return. The only difference is the addition of extra forms that pertain to your business, mainly the form T2125 Statement of Business Activities. There’s no need to fill out another return for your business – your personal return covers it all.
4. As a freelancer, you contribute to your own retirement.
Self-employed taxpayers don’t have the luxury of having an employer match their CPP contributions. Employees contribute their Canada Pension Plan contributions via payroll deduction. These amounts are then matched by the employer. As a freelancer, you are responsible for not only your own share, but the “employer’s” share as well. The amount of CPP contributions due is calculated on your tax return and included in any balance owing.
Specialized self-employed tax prep software such as TurboTax Home and Business gives step-by-step instructions and expert guidance to navigate your freelancer activities. The business interview simply requires that you answer questions about your business activities and fill in the blanks.