Tax tips for freelancers - Give Me Back My Five Bucks

Tax tips for freelancers

As someone who has had a side business as a freelance writer/blogger/graphic designer for almost 10 years, I’ve realized there are plenty of advantages to working for yourself. You get to set your own hours, work from anywhere, take on as much or as little as you want, and the decision is up to you to decide who to work with. Freelancing has supplemented my income, and allowed me to travel the world! But honestly, tax season is the time of year that I always dread. There are so many receipts and paperwork to get through, so if you’re anything like me, you’ll try to push the filing deadline to the back of your mind.

But I’ve learned the hard way that waiting until the last possible moment to start on your tax paperwork will leave you stressed out. If you haven’t already done so, start organizing your receipts and invoices now – the last thing you want to do is stress yourself out and make mistakes to try and hit your filing deadline (which is April 30th).

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. 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 what 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 portions of 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.

Taking the effort to save all receipts and invoices will save you from headaches when you file your taxes, but it will also ensure that you have everything you need should you ever get audited.

Save for your taxes

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. Based on the province that you live in, and the amount of deductions you will end up making, it’s hard to estimate how much of your income you should be saving for your taxes. A safe amount to put aside would be 30% 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.

If your income exceeds $30,000 over the past four consecutive calendar quarters, you will need to register for a GST/HST account and start saving for that as well. GST/HST amounts vary by province, so make sure you know how much you should be saving.

Set 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.

Here are 3 little things you can do right now in order to ensure next year’s tax season is easier on you:

  1. 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 will be easier to handle come tax time.
  2. Keep separate business bank accounts. It is significantly easier to figure out how much you’re actually spending on business-related expense if you hold a credit card and bank accounts specifically set up for your business expenses.
  3. 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.

Using an online tax program like UFile will make your life much easier. The software automates calculations, including child care expenses, tuition transfers, pension amounts (and pension splitting), as well as medical expenses and donations. This will ensure that your tax return is filed correctly and in your best interest – so you can spend more time working on projects or seeking out new clients. :)

What tax tips do you have for freelancers?

Note: this post has been sponsored by UFile, but all of the words are my own. 

About UFile Tax Software
UFile is the consumer tax program from Thomson Reuters, located in Montreal, Quebec.  It is a leading provider of tax preparation products and has served the professional tax community with personal and corporate tax products for more than 20 years. UFile products include UFile ONLINE (online tax software), UFile for Windows (UFile 4 and 12) and UFile PRO.  For more information, please visit www.ufile.ca, or you can follow them on Twitter @ufile.

About Krystal Yee

I'm a writer, personal finance blogger, and marketing professional based in Vancouver. I'm a former Toronto Star (Moneyville) columnist, author of The Beginner's Guide to Saving and Investing, and co-founder of the Canadian Personal Finance Conference. When I'm not working, you can usually find me running, playing field hockey, or plotting my next adventure.

4 comments

  1. I’d say these are great tips. Saving for the taxes is always a good idea and trying to keep all the stuff well organized will save you time and headaches, when it comes to doing the taxes.

  2. Great tips, Krystal! Being a freelancer and a landlord is such a headache at tax time. I’ve already spent 2 hours doing my taxes and I’m not even half finished! My best advice is to keep your receipts organized, otherwise you’re going to be scrambling come tax time!

  3. Anyone who earns income using a website should be aware there are new reporting requirements. Internet business activities

    “Page 1 of Form T2125, Statement of Business or Professional Activities, has been revised to include information concerning Internet business activities.”

    This applies to basically anyone who gets paid to run advertising on their website or who earns income in any way from a website whether they consider themselves to be “self employed” or not. It’s worth reading through and filing properly.
    http://www.cra-arc.gc.ca/E/pbg/tf/t2125/t2125-13e.pdf

  4. My best advice: keep all documentation related to the percentage of home use for business purposes for anyone claiming expenses from a home based business. I’ve seen a few audits of home expenses of clients and some didn’t end well

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