But with tax season just around the corner, most freelancers try to push the filing deadline to the back of their minds -- after all, with no payroll department deducting your income tax, a refund isn't exactly in the cards. However, not only will waiting until the last possible moment leave you stressed out, but you will probably end up making mistakes as you rush to get everything submitted. Start organizing your receipts and invoices now.
Here are some tips to help you get all of the deductions that you qualify for.
Keep track of all receipts and invoices
No matter how small or insignificant you think it is, make sure you’re saving every receipt and invoice. If you purchase something online, print the receipt and file it away, or have a folder on your computer to save it to. If you bill out for 15 minutes of work, make sure you keep a record of it, even if the invoice is only for $10.
Knowing exactly which receipts to keep can be important. For example, you might not think to keep receipts or records for furniture, postage, travel expenses for conferences or interest on business-related loans and bank charges -- but those expenses can all be deducted at the end of the year. Make sure to check out the Canada Revenue Agency website for a full list of what can be deducted.
Not only will taking the effort to save all receipts and invoices save you from the headache of filing your taxes and doing paperwork at the last minute, but it will ensure that you have everything you need should you ever get audited.
Save for your taxes
â€¨It is extremely important that you set aside a portion of all the income you receive. It will save you from scrambling to come up with the money to pay your taxes when they come due. It's not easy to make an estimate, but a safe amount to put aside would be 30 per cent of your gross income. You might end up paying a little more or a little less, but at least you will have a starting point that you can adjust on an annual basis.
Note that you will have to pay your income tax by installments if your net tax owing is more than $3,000 in 2012 and in either 2011 or 2010.
And if you collect GST or HST, remember that you'll have to pay that back as well -- so include it in your savings plan.
Page 1 of 2 - learn how to get an early start for next year's taxes on page 2Set up an RRSP
You won’t have a company pension plan to rely on, so you will have to save for retirement on your own. Contributing to an RRSP will lower your personal income amount, and you will end up paying less income tax because of it.
Make taxes easier
Hiring an accountant to do your taxes is always a good option, because they will know exactly what you can deduct as expenses -- ensuring that you will get the biggest tax break possible.
Here are three little things you can do right now in order to ensure next year’s tax season is easier on you:
• File your paperwork. If you have a shoebox full of receipts, take an hour each month to file and input the receipts into a spreadsheet. Staying on top of your receipts and invoices will keep your finances organized throughout the year, and they'll be easier to handle come tax time.
• Keep separate business bank accounts. It is significantly easier to figure out how much you’re actually spending on business-related expenses if you hold a credit card and bank accounts specifically set up for your business expenses.
• Set up automatic RRSP contributions. RRSPs will lower your personal income amount, so have your bank automatically deduct a set amount of money out of your chequing account each month. You will end up paying less tax each year as a result.
Most freelancers would rather spend their time working on projects or seeking out new clients, so hiring an accountant to do your taxes can be a good option. They will know exactly what you can deduct as expenses, ensuring that you will get the biggest tax break possible. And as you establish a relationship with an accountant, they will be able to give you tax advice personalized to your business and your situation.
What tax tips do you have for freelancers?
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