Self-employed taxes – 4 key questions to ask yourself before filing.
June 5, 2018
There are many things to love about being self-employed, but taxes aren’t one of them. Filing taxes when self-employed can be a lot more complicated. The good news is that we’re here with four questions to ask yourself before filing to help make the process a breeze.
When is the self-employed tax deadline?
Self-employed Canadians get almost two extra months to coordinate their taxes compared to the rest of Canada, but this also means that just when we finally escape the rainy, windy and sometimes icy spring weather, self-employed workers must lug out their paperwork.
If you are self-employed, your tax return deadline is just around the corner, on June 15th. That means that if you carried on a business in 2018, you should file with the Canada Revenue Agency (CRA) by that date to avoid a late-filing penalty. And although penalties can be avoided if you file on time, it's important to note that interest will still be charged on any balance due from May 1st 2018. Hopefully by reading this article you'll avoid missing the filing deadline altogether!
If you do end up missing it, the CRA will charge you a late-filing penalty equal to five per cent of the balance owing, plus another one per cent for every month you are late to a maximum of 12 months. Do you really want that?
Am I self-employed?
If you’re reading this article, you probably know you are self-employed, but just so we are all on the same page, you fall under this category if you retain control of how and when you do the work, supply your own tools to get the work done and run a financial risk if the venture is unsuccessful. Examples of self-employed Canadians include Uber drivers, freelancers and small-business owners who are not incorporated.
Some employers, however, treat their employees as self-employed when they should not be classified as such in order to avoid payroll taxes. If you are unsure of your status, you can request a ruling from the Canada Revenue Agency.
What business expenses can I claim?
Alright, time to get money back in your pocket (our favourite part). If you are self-employed, you can claim reasonable expenses incurred to earn your business income. However, you must keep a proper record of your income and expenses and prove your expenses with receipts. Receipts must include a description of the goods or services purchased, so you need more than just the electronic transaction record or credit card slip.
- Home expenses: One of the most common overlooked deductions for freelancers or those who are self-employed are home expenses. If you’re using your home as your principal place of business, you can claim a portion of your home expenses (for example, insurance, property tax, mortgage interest, and utilities). The amount you can claim depends on the percentage of the total square footage of your home that you use for your home office. However, if you do not use the office exclusively for business, you’ll have to further reduce it by the percentage of time you use it for personal use.
- Vehicle expenses: If you are using a vehicle for both personal and business purposes, you can only claim expenses relating to your business use. For this reason, it’s important to keep a detailed log.
- Equipment: Equipment including cellphones, laptops and cameras are considered capital assets and can be claimed on your tax return. However, you will have to deduct the cost of those items over a period of several years as the asset’s value depreciates.
- Outfits/clothing expenses: Unless you are required to wear a uniform/costume for your work and it is used for business purpose only, you cannot claim clothing as an expense.
- Travel expenses: You can claim travel expenses (for example, flights, ground transportation, and hotels) if it is reasonable and was for business purposes. Once again you will need your receipts as well as proof that the travel was integral to your business (for example, a receipt to a workshop or conference that you attended).
When should I claim GST/HST?
You are required to register for the GST/HST and start collecting it from your customers if your gross revenues exceed $30,000 in the last four calendar quarters or in any single calendar quarter. Keep in mind that registering for the GST/HST is beneficial to you since you can then get back the GST/HST you pay on your expenses in the form of input tax credits. If your revenues are under $30,000, you can still register voluntarily.
All in all, tax season doesn't have to be a stressful or negative experience for Canadians and making sure you file by the June 15th deadline – and filing correctly – will ensure you have peace of mind to go about your life and your business without unnecessary headaches down the line.
A Tax Expert at H&R Block can help answer any questions around filing your personal tax return as a self-employed Canadian.