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Tax Tips: Reporting Self-Employment Income

The number of Canadians who are self-employed has risen dramatically over the last 20 years.

While working for yourself has a lot of benefits, figuring out your self-employment income, calculating your taxes, and how to claim certain-business related expenses isn’t one of them.

Below is a list of important tax tips for small business owners and self-employed Canadians.

Declaring Self-Employment Income

Should you file taxes on self-employment income even if it’s a small number?

Yes. As soon as your small business starts making money, you need to report it, even if it’s only a few hundred dollars. Failing to do so would be considered tax evasion.

Keep in mind, you’re responsible for paying your own income taxes. To ensure you’re not caught off guard come tax time, set aside 25% of your self-employment income for taxes.

You’re only taxed on your net income, which is your total income minus expenses.

Keep Track of Expenses

One of the benefits of being self-employed is being able to take advantage of tax deductions that are not available to those who work for someone else.

What can you deduct to help bring your tax bill down? You can deduct any reasonable expense related to the cost of running your business. This includes:

  • Advertising
  • Cellphone and Internet
  • Meals
  • Entertainment
  • Office supplies
  • Business start-up costs
  • Maintenance and repairs
  • Motor vehicle expenses
  • Rent
  • And more.

The full list of operating expenses you can deduct is actually quite large.

You also need to understand how much you can claim for each deduction. For example, if you use your home Internet for 25% of your freelance work, you can only claim 25% of that bill.

In some cases, there are tax deductions based on depreciable property that can be spread out over a number of years. Suffice it to say, it can get confusing come income tax time.

GST/HST Registration

As soon as your combined sales surpasses $30,000, you need to register for a GST or HST number. The CRA will not force you to get a GST or HST number, but if you file taxes and they discover you haven’t registered for one and collected the taxes, you’ll be penalized.

Not surprisingly, it’s very easy to get a GST or HST number. Once you have a number, you need to start collecting taxes. How much you charge depends on which province or territory you live in.

It’s also based on what province you conducted your business in. If you live in Toronto and do freelance work for someone in Halifax, the amount of tax you charge will be different than if you did a job for someone in Hamilton.

FBC, Helping Self-Employed Canadians Prepare Their Taxes

There are a lot of advantages to being self-employed. Not taking advantage of all the deductions and legal tax loopholes available to you could end up costing you thousands of dollars come tax time.

Unfortunately, when it comes to preparing your taxes as a freelancer, Canada’s tax code can be confusing. Not only that, the CRA introduces changes to the tax code on a regular basis.

To make sure you’re maximizing your assets and minimizing your tax obligation, call the self-employment experts at FBC.

FBC has worked exclusively with self-employed Canadians, small business owners, farm operators, and independent contractors since 1952.

Over those 66 years, we’ve provided tens of thousands of clients big and small, with customized tax services. This includes tax preparation, tax planning, bookkeeping, and financial planning.

For more information on FBC and the services we offer, call us today at 1-800-265-1002 or submit an online form and an FBC tax specialist will contact you at your earliest convenience.