I love tax time. I know I say this all the time, but tax season is one of my favorites. And finding great tax tips of freelances is one of my favorite things to do. Not only because I truly enjoy getting my financial house in order, but because it’s a great way to see how I manage my income easily.
While most employed people think doing their taxes is pretty simple and straightforward, entrepreneurs and freelancers see things quite differently. We’re thinking about taxes all year round.
That’s just how things when you work for yourself. So whether you’re a consultant or web designer like I am, or a freelancer, knowing how to get ready for tax season gives you a leg up on your business.
Having worked for myself for the last few years, I have gathered 6 great tax tips for entrepreneurs and freelancers that will make every tax season to come quick and painless (if you do the work year round!).
1. GET YOUR FINANCIAL HOUSE IN ORDER
This goes without saying, but keep track of everything, and I mean everything that has to do with your business. This can be something as little as having coffee with a client, or something as large as a $10,000 software system that you invested in for work.
One of the best tips I learned over the last few years is that I have to know my money intimately. I need to know where it’s coming from, and where it ends up.And everything between.
Having receipts are a great way of keeping track. For those who are digitally inclined, there are a ton of great apps that you can use to keep the clutter down if the shoe box method is not for you.
2. KNOW YOUR DEDUCTIONS
This is one of the areas that I struggle with the most. It’s hard to keep up with all the things that are considered deductions, and the different tax breaks. I tend to refer to the Canada Revenue Agency’s website quite often to make sure that I’m on the right track throughout the year.
It can get really tricky for those of us who work from home. I also always forget that moving expenses, transportation costs, among other things can be, in some cases, part of my business expenses. So at tax time, I rely on TurboTax to walk me through the process so I don’t miss anything at all.
3. INVEST IN YOURSELF FIRST. ALWAYS.
It’s hard to think about myself when I’m focused on growing my business, but investing in RRSPs is one of the smartest things I can do for myself. Not only does it lower my income tax levels, but it sets me up for the future.
I tend to do automatic monthly deductions so I don’t feel the last minute rush of having to contribute before the deadline. Not only does it lower the amount of perceived discretionary income I have in my bank account, but it also makes it me feel better knowing that my future is somewhat secure from the volatility that is self employment.
4. FIND THE RIGHT HELP.
Navigating the self employment waters can be a little tricky so being as prepared as possible is the best gift you can give yourself. This is closely followed by using the right tools to get me to my destination. One of my favorite tools is TurboTax as it literally maps out every step for me, directing me like a GPS and providing updates on the value of my return.
You don’t need a ton of tax knowledge to get your taxes done right. TurboTax translates taxes into simple questions about your life, like “Did you get married?” and puts the information in the right place for you.TurboTax ensures that you have no missed deductions or credits by automatically searching more than 400 to determine the ones that apply directly to you.
One of the biggest fears that I had when I first doing my own taxes was about being audited. Although I have all my receipts getting a letter or a call from the CRA is a scary thought.
Using a tax software service like TurboTax makes that fear unfounded as they have my back.
Should the CRA contact me for any reason about your tax return, TurboTax’s Audit Defence* pros will spring into action by putting their years of experience to work for me.
They will work on my behalf to defend my return to the CRA, review my return and related documents for problem areas, talk to the CRA on my behalf, minimize financial impact of an audit and schedule and attend all meetings with the CRA.
5. HAVE EMPLOYEES? KNOW THE TAX CREDITS FOR SMALL BUSINESSES
Tax credits change very often (thanks government!), and it’s so hard to keep on top of everything if you have a team of people working for you. The Small Business Job Credit will effectively lower small businesses’ Employment Insurance (EI) premiums from the current legislated rate of $1.88 to $1.60 per $100 of insurable earnings in 2015 and 2016.
Any firm that pays employer EI premiums equal to or less than $15,000 in those years will be eligible for the credit. Almost 90% of all EI premium-paying businesses in Canada will receive the credit, reducing their EI payroll taxes by nearly 15%.
You are eligible for this credit if you meet all of the following conditions in 2015 and/or 2016:
- You deducted EI premiums from the remuneration you paid to your employees, or paid the worker’s share of EI premiums for barbers, hairdressers, fishers, or drivers of taxis and other passenger-carrying vehicles, and you remitted these premiums (along with your businesses’ share of EI premiums) to your payroll program (RP) account;
- You reported the income and deductions on a T4 slip and filed this information on your RP account for 2015 and/or 2016; and
- The total of employer EI premiums you paid for all of your RP accounts in 2015 and/or 2016 was $15,000 or less.
- You don’t have to apply for the credit. The CRA will automatically establish eligibility for 2015 and 2016 separately, based on the T4 information that you file for each of those years.
6. SAVE FOR YOUR TAXES
I know it goes against what most people think when they think about tax season, but saving for my taxes on a monthly basis has saved me from the sheer panic that sets in when tax season rolls around.
I’ve come to love tax season, only because I’ve prepared my books, and have the right tools to help me out.
One of the perks of being a TurboTax Ambassador is being able to share the love, so I’ve giving away 2 codes to make sure that your taxes are done. These can be used for personal or small business!