Are you a freelancer or small business owner? Taxes for the self employed can be very different than personal income taxes for most. The deadlines vary, claims can be a lot more complex and you often have to plan for tax season throughout the year.
1. Tricky deadlines
You have more time to file your taxes. Instead of April 30, you have until June 15 to file your taxes if you are self employed. The only catch: if you owe taxes (which you might since no employer is regularly deducting income tax from your pay), you have to pay interest on the tax owing as of the April 30 deadline. (And the government does charge interest on this amount.)
2. Responsibilities of being the boss
If you have employees, they're relying on you to file their own taxes, and you'll need to prepare their T4 slips by the end of February. You also need to keep records of absolutely everything, such as receipts for all business expenses, and you'll need to keep them in storage for seven years. You also must pay HST. If your business makes more than $30,000, you need to get an HST number and start charging it when you sell goods or services and remit that money back to the government. You can file it quarterly or annually.
3. Don't mix business with pleasure
A common challenge of the self employed is mixing up personal and business expenses. When you use a personal bank account and credit card to buy things for your business, it’s can a big pain to keep things separate for tax time. Experts warn against this because it’s very easy to accidentally write off a personal expense as a business expense, which can cause you grief later on if you’re audited.
4. Pay in installments
Be sure you set some money aside throughout the year to pay the government for your taxes. Otherwise, you can get hit with a hefty tax bill in the spring — plus the government will charge you interest.
5. Be error-free
Doing self employed and small business taxes is complex. Doing them on your own is not a good idea: you can make mistakes and miss out on key deductions. Hire an accountant to help you sort out legitimate expenses from those that won’t fly with the government, and to do the paperwork properly.
6. Think of tax season as year-round
Your biggest possible pitfall: not looking ahead. Tax season just comes in the spring, but all year you should be thinking of tax time by making sure you’re charging HST, paying installments, keeping receipts and purchasing items and services that are legitimate write-offs.