Josh Goldstein figures he was lucky the first couple of years he worked as an independent contractor – he didn’t keep track of his expenses but managed to not owe any money when tax season came around.
But eventually he caught on to the sheer amount of expenses he could write off as a bike courier: his meals, his waterproof clothing, as well as each and every part of his bike. Now, as the owner of a courier company he runs out of his home in Victoria, he writes off a portion of his rent and office supplies.
Not everyone is as fortunate when they enter the gig economy.
Josée Cabral, a senior tax specialist at H&R Block, says the majority of first-time freelancers and gig workers have no idea about the amount of expenses they can write off – if they keep receipts – and they end up having to pay thousands of extra dollars in taxes as a result.
“It’s not like you start working with SkipTheDishes or Uber and they tell you ‘Okay, you’ve got to keep your receipts for deductions and whatnot,’ ” Ms. Cabral said. “Gig work is mostly something people give a try to make some extra money, and they’re not necessarily aware of the tax implications.”
The number of gig workers – people who cobble together freelance work from multiple sources – is rapidly growing in Canada. An H&R Block survey showed a quarter of today’s gig workers started for the first time in 2020, which means that for many it’ll be their very first time filing taxes as an independent contractor or freelancer. Ms. Cabral said there’s nothing more important than being prepared in order to minimize your tax owing.
Tax experts say they’re seeing many people turn to independent contracting work as a way to deal with added costs of life under the pandemic, or as a way to make money after being laid off.
Ms. Cabral said new independent contractors need to consider every expense that detracts from their income. That can include things such as gas, some or all of your car insurance payments, and portions of your cellphone bill.
Every little expense can add up and make a large difference during tax season. For example, Ms. Cabral said an independent contractor earning $50,000 in a year could expect to get taxed on around 20 per cent of their income (depending on their jurisdiction), which would equate to around $10,000 owing at filing time.
A diligent tax filer could have $15,000 in various receipts, which would bring their net income down to $35,000 and lead to around $3,000 in savings on their tax bill.
Without the receipts, there’s no way of proving your expenses, and they could be nullified if the Canada Revenue Agency happens to audit you.
But Georgia Swan, a tax and estate planner with TD Wealth Management, said it’s also important to be well informed about the limitations around what you can write off.
She recommends that people who are freelancing or running their own business for the first time get an accountant or consult with a tax specialist to avoid any headaches down the road. Clients should not underestimate how complicated tax season can become, especially if your business grows and starts employing people.
One of the limitations Ms. Swan pointed out involves writing off larger purchases such as a car or a commercial stove. Since those items serve a long-term purpose, they would count as a capital expense, and you’re only able to write off the depreciation on those items each year.
For example, you might be able to write off 10 per cent of a car you purchased each year to account for depreciation. That means if you bought a $30,000 car for business use, you’d only be able to write off $3,000 each year.
In the event that you owe a considerable amount of money to the CRA, Ms. Cabral recommends reaching out to the agency and immediately organizing a payment plan.
“That cuts off the interest [charges], and as long as you respect the payment arrangement with the government, they’re very open to making that arrangement,” said Ms. Cabral, who notes the CRA would normally charge 1 per cent in interest a month of your tax owing.
“But as soon as you don’t respect the arrangement, they put back the interest.”
Mr. Goldstein, who has worked as a bike courier for years in Toronto, Vancouver and Victoria, said he’s taken it upon himself to try to make new couriers aware of the impact that tax season can have on their finances.
His advice is that independent contractors need to set aside time and space to consider their tax obligations and organize their expenses year round – not just during tax season.
“It shouldn’t be a year-end activity,” said Mr. Goldstein, who says keeping track of receipts isn’t a fun responsibility, but it is a necessary one.
“It should be something you’re constantly aware of.”
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