Filing Freelance: Tax Tips For Self-Employed Workers
January 5, 2017
With the new year, comes the approach of the dreaded tax season. However, there is no need for fear! For those who are self-employed or freelance workers, tax season can not only be overwhelming, but it can also be incredibly confusing. Let’s take a look at some easy steps all self-employed and freelance workers should take to ensure their taxes are filed correctly and on time.
Work With A Professional
A big mistake self-employed workers make is skipping ahead and using either computer software to do their taxes, or attempting it themselves. The issue with this approach is that they often don’t understand exactly what they are or aren’t entitled to deduct or are required to pay, which as everyone knows, can lead to financial hot water. The best way to ensure everything is accounted for properly and legally is to sit down with a trained professional and go over each aspect step by step.
Know What You Need to Pay
The beauty of working with an accountant is that they can easily sort out and explain to you what you are required to pay and exactly how much. Things such as Canadian Pension Plans (CPP) and Employment Insurance (EI) are all costs which freelance workers often have trouble calculating into their total owed taxes. Since major costs are automatically deducted by an employer, it can be a sticky situation to crunch the numbers and know the specifics when you work for yourself.
Pay Estimated Taxes Quarterly
Just like an employer would deduct your taxes with each paycheck, you should be doing the same. And just like being employed the Canadian Revenue Agency may want those taxes through the year. It is suggested that you pay your estimated taxes quarterly or place those quarterly amounts into a savings account so that they are easily paid at the end of the year to avoid any hiccups come crunch time. On top of that, paying your estimated taxes throughout the year can help alleviate the financial burden of paying in one lump sum.
Be Sure Your Accountant Understands Your Business
Once you’ve put the trust of your taxes in the hands of a professional, it is important to know they fully understand how your business operates. Everything from what days you work, where you work from and even what do you day to day can have a huge impact on your taxes and deductions. For example, if your job is a freelance restaurant reviewer, you would be entitled to write off a portion, if not all, of those meal costs as a business expense. Hence why it is very importantly to disclose all necessary information to your accountant and keep the lines of communication open as your business evolves and changes throughout the year.
Keep All Receipts
As a self-employed worker, one of the biggest rules of thumb to remember is to keep track of absolutely everything. Since it’s your wallet on the line, it is strongly encouraged to always keep all receipts from purchases, expenses and payments. While things such as gas station receipts or even a casual trip to Staples may seem unimportant, these types of costs can actually have an effect on your taxes, often in your favour! Even more preferably, keep a record of all receipts in a digital format, therefore alleviating the mess of storing and organizing them, which also lowers the chances of losing any vital information.
If You Can’t Pay, Speak Up
A major issue with people who are self-employed or working freelance is that they start to panic when they can’t pay their taxes, which believe it or not, leads to people avoiding filing all together. While you can try to run for cover, avoiding your taxes has never done anyone any good. If you can’t make your payment on time, the best way to approach it is to contact the CRA and explain the situation. What most people find surprising is that alternative options are offered, from payment plans to extensions depending on your situation. If there is anything we have learned throughout many tax seasons, in many industries it’s always better to be up front if you come up short, because it will always catch up with you down the road if you don’t, sometimes with serious consequences.
Filing taxes can be hard enough for a business, but for somebody who is self-employed it can be an overwhelming experience. At Cal Accounting, we are always happy to help you better understand your taxes, deductions and payments to leave you and your business in sound financial standing with a positive outlook on growth. If you have any questions about your income taxes as a freelance or self-employed worker, please don’t hesitate to contact us at 705-728-6469.