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Tax season is once again in full swing, and the newly self-employed may be curious about money-saving deductions and tax credits that can help save big – so more dollars can go toward future growth. But how to get started?
This is a starter guide with tips for achieving self-employed tax success from the experts.
Set up for the right business
Your business structure affects tax filing requirements and deadlines. If you are the only owner, your business is considered a sole proprietorship. As such, “your business net income is part of your personal tax income and must be included on your personal tax return,” says Stefanie Ricchio, CPA, tax expert and spokesperson for TurboTax Canada.
If you decide to incorporate your business, then you would need to file a T2 tax return independent of your personal T1 tax return. An incorporated business is its own legal entity for tax purposes.
Each option has pros and cons that should be carefully considered. Any income you earn from your business, along with related expenses, should be reported on the T2125 form for sole proprietors.
“Make sure you keep track of your expenses to take full advantage of all your eligible business expenses and ensure your income is correct. Also, remember to keep your personal finance expenses separate from business expenses,” says Ms. Ricchio. “It can be easy to miss expense deductions and ultimately that’s savings in your pocket, so why not make the most of your income by being as organized as possible?”
Self-employed Canadians can benefit from a helpful and easy-to-use resource like TurboTax, a solution designed to help you get the best tax outcome possible and help navigate the tax complexities of owning a small business.
Pro tips on filing GST/HST on your self-employment
So you’ve made it big, now what?
“Once your business makes $30,000 or more in sales in three consecutive months or $30,000 within the previous four consecutive calendar quarters, you have to register for a GST/HST account,” says Ms. Ricchio.
You might also want to consider voluntarily registering for a GST/HST business number even if you sell items that don’t require you to charge any. That way you can take advantage of paid input tax credits and get them back when you file your remittance.
To avoid any penalties or interest charges, consider working with an expert, like those available through TurboTax to help you navigate how and when to file for GST/HST.
Don’t miss a money-saving deduction or credit
“The first step is to understand which expenses and tax credits you can take advantage of for your unique situation,” says Ms. Ricchio.
“This way, you can minimize taxes payable and reinvest your time, energy and funds into living life to its fullest. Using a service like TurboTax, which offers guides and checklists can ensure that you’re not missing out on important information.”
Let’s not forget about tax credits. “The types of tax credits you receive can depend on the industry or province you’re working in,” says Ms. Ricchio.
“There are more than 80 individual industry and province-specific tax credits a small business can take advantage of, so it’s helpful to familiarize yourself with some of them by browsing the TurboTax website. I’d also recommend seeking expert help so you can make sure you’re getting every deduction you deserve.”
Navigating tax deductions and credits can be overwhelming, especially for a newly self-employed person, but it’s worthwhile: every dollar of your hard-earned money matters. To get a better sense of the impact well-tracked expenses can have on your tax payable, TurboTax has a handy self-employed expenses calculator on its website.
Never underestimate the importance of being organized
None of this can happen without meticulous records.
“Tax season only comes around once a year, but it’s important to keep track of receipts and expenses,” says Ms. Ricchio. “For next tax season, consider a formal folder or digital solution instead of, say, your kitchen drawer or your car cup holder.”
As well, the CRA requires that you maintain your records for 6 years in the event of an audit or reassessment.
What happens if you somehow miss a major expense? Expenses incurred in a business’s fiscal year must be claimed against income earned in that year. With that said, if you miss an expense, you can always file an amendment. “Expenses for a business must occur on or after your start date. Let’s say you spend $1,500 for advertising in 2023. That must be reported in your 2023 tax return; it cannot be deferred to a future tax year,” says Ms. Ricchio.
“The only type of expense that can run over multiple years is depreciation of assets. Let’s say you already owned an item such as a computer before starting your business, and you now use it to keep your business running. You can transfer those assets to your business and claim them on your taxes within your first year of starting. “Depending on the value of the asset, you will amortize or depreciate a percentage each year. For tax purposes however, you will use the CRA prescribed Capital Cost Allowance rates to depreciate assets.”
As complicated as taxes may seem, the right solution can make them work for you and your business — and the upside makes it worthwhile. “Each tax situation is unique and it can be a lot to research and keep track of all the relevant credits and deductions, but there is help available,” says Ms. Ricchio.
“TurboTax Live Full Service’s experts can take the work off your plate, or just take advantage of TurboTax Live Assist & Review for suggestions on credits and deductions personalized to you and your line of work.” With the appropriate help, you can achieve the best possible tax outcome and keep more money in your pocket for your future business goals.
Want a curated list of recommended articles to help you make the most of this year’s tax filing? Take this quiz for tailored tax tips.
Advertising feature produced by Globe Content Studio with TurboTax. The Globe’s editorial department was not involved.