Self Employed? Get a Payoff From Proper Tax Planning

When you have a traditional job, taxes are pretty straightforward. Fill out your income, nab a few write offs like daycare and medical expenses, send in the form and get your rebate. Done.

Not so when you work for yourself. Self-employed taxes are a much more complex and important part of your financial year. Particularly if you just work by yourself with no employees, you’re essentially doing the taxes for a small business and combining this with your personal taxes.

There’s a lot to do and a lot that you must plan for throughout the year. Here are a few ways to make navigating taxes for the self employed less complex:

Keep Everything – And I Mean Everything

Particularly if you’re new to the self-employed market, it’s important to hold on to every receipt you get through the year – every single one. You can toss them all into one big file folder (I’m guilty of this!) or you can sort through as the year progresses. I know freelancers who use an accordion file and slot in different categories when they empty their wallet.

Keep it all because you might not know what, at the end of the year, is a valid write-off. But FYI – gas and car repairs will qualify if you use your car at all for business. You can write off some of your restaurant meals. If you run a home office, anything related to office supplies are excellent write-offs. This also allows you to write off a percentage of your home’s heat, hydro and some repairs. Then there are things related to your business. If how you look is key, haircuts are in. If you make something, tools and materials that help you with your craft will qualify.

Check out Tax Credits You Gotta Love for even more ways to save money during taxes.

Do Not Attempt This Alone

When it comes to your taxes, get some help! Filing self-employed taxes is very complex and there are numerous write-offs and rules that are too difficult for the average person to master. Hiring an accountant who deals with clients in businesses similar to yours is very important. That person will be able to tell you if you should cut back on your food and entertainment receipts, and should know how to divvy up home expenses and properly integrate your returns with your spouse’s.

Looking for even more help during tax planning? Check out the services of a financial planner.

Pay Ahead, Get Ahead

People who have traditional jobs pay taxes every paycheque. Revenue Canada knows this and expects to receive your money during the year as well. So, if you work for yourself, the government will likely start asking you to pay your taxes in installments. These are usually four payments spread throughout the year. Sounds like a drag – but the truth is, paying your taxes off in increments is better than getting one huge bill at the end of the year. Most banks let you pay Revenue Canada like you would pay off any vendor (such as Visa or the gas company) through their web sites, and you can pay your installments on the dates required that way, or by cheque. But frankly, if you can give the government a few dollars here and there whenever your can, you’ll be better off come tax time.

Know Your Deadlines

This is key: while employed people must file their taxes by April 30, self-employed Canadians have until June 15. Great! But you should know that if you owe a tax balance, you will be charged interest as of May 1 anyway. If you do miss the June deadline and you owe taxes (which you surely will if you are self-employed), you will get dinged for 5 per cent of tax owing as a penalty.

What The Heck Is HST?

If you are self-employed, you may be required to collect and remit HST (Harmonized Sales Tax). Basically, if you bring in more than $30,000 a year, you need to get an HST number and collect tax on the products and services you sell. Then, you must remit some of this money back to the government. You can do this in quarterly installments or annually. And you can do it alone or have your accountant help you. (FYI, you can count up all your expenses and your income and calculate the HST that way or there is the Quick Method, which makes it easier.)

 The Rewards of Receipt Hoarding

It sounds like a lot of hassle, but those who have been self-employed for many years simply get used to saving every receipt, socking away money for taxes and making close friends of their accountants. Since you can write off many things you’d pay for even if you did not run your own business — computers, telephone, car expenses — there are some big financial benefits to the tax situation of someone who works for themselves. Plus, of course, you get to work for yourself – a worthy payoff for many.

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