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Canadian Income Taxes when you’re Self-Employed

Being self-employed comes with many benefits. You can set your own hours, take on projects you want and, when it comes to income taxes, you might even be able to write off some of your expenses. However, while there are a lot of advantages, there are also potential issues and things to watch out for.

Completing your income taxes can be more difficult or more complicated if you’re self-employed. Here are a few tips that can make it easier.

Be Organized

This is, perhaps, the best tax tip for self-employed individuals. When you work for an employer, you receive a T4 slip (or other similar document) that lists many of the details that you’ll need to complete your income tax return. When you’re self-employed, you need to record and maintain all of this information for yourself.

Keeping accurate records of sales, expenses, business transactions, etc. is crucial. This information will make it easier to fill out your income taxes each year.

Self-employed individuals are also somewhat more likely to be subjected to a Canada Revenue Agency audit. If you are selected for an audit, the CRA will want to see your financial records. You’ll want to have them organized in case this happens.

Writing off Expenses

If you are self-employed, you are entitled to deduct reasonable costs that you incurred in order to earn business income. This means that money spent on advertising, licenses, office supplies, accounting services, equipment, insurance, software, etc. may qualify as deductions for income tax purposes. There are some restrictions so, if in doubt, look up the deduction you are considering or ask a tax professional for advice.

Home Office Costs

If your principle place of business is a home office, then you are entitled to deduct a portion of your household expenses, such as mortgage interest, property taxes, repairs, maintenance, condo fees, etc. However, your home office must be a designated area of your home that is only used for business purposes. This means you can’t claim your bedroom or kitchen as a home office if you’re also using this room as a bedroom or kitchen, for example. You may be required to submit a floor plan of your home to show that the area is used only as an office.

Save for Taxes

One of the biggest issues that self-employed individuals deal with is not saving money for income taxes. If you are an employee, taxes are taken off of your paycheque every time you receive it. This makes it less likely that you’ll be hit with a big tax bill when you file. However, if you’re self-employed, you’ll need to save this money yourself.

In many cases, you will be expected to make quarterly income tax payments to the CRA. If this applies to you, you will receive a notice from the CRA detailing how much you are to pay and when the payments are due.

In some cases, self-employed individuals find themselves faced with a tax bill that is larger than expected, and they’re not able to pay off the debt. If this happens, call 1-888-868-1400 to talk to our team about how to deal with the CRA.