CHECKLIST FOR THE SELF-EMPLOYED
If you’re a free-lance writer, consultant or other self-employed taxpayer, here’s a last-minute checklist for filing your tax return:
Include all of your revenue for the year but be careful not to double count your income.
In some cases, clients will send you a T4A slip to report the amount they’ve paid. If you have already recorded the income in your records, you are in danger of paying tax on the income twice—once when you report the T4A and again when you total the income from your books.
If you are a self-employed salesperson and have won a contest related to your selling activity, you will need to include in your income the value of the prize.
If you are self-employed, you are allowed to deduct expenses incurred to earn income. These expenses typically include a home office (where no other office exists), transportation (with specific rules for allowable automobile deductions) and entertainment (you are allowed a 50% claim).
You can also deduct expenses for travel, advertising in Canadian media, salaries and some benefits. Receipts are needed for all of the expenses claimed and these should be kept for six years. Spouses and children can be paid a salary provided that it is for legitimate work and the amount is reasonable for the tasks performed. Invoices should be prepared and payments must be made.
CLAIM ALL EXPENSES RELATED TO MAINTAINING YOUR OFFICE, INCLUDING:
- Repairs and maintenance
- Telephone and Internet
- Rent or property taxes and mortgage interest
YOU CAN ALSO CLAIM A PORTION OF THE FOLLOWING AUTOMOBILE EXPENSES RELATED TO BUSINESS USE:
- License and registration fees
- Maintenance and repair
- Fuel, oil and lubricants
- Parking fees
- Interest expense
- Capital cost allowance
- Lease payments
FIND A GOOD ACCOUNTANT
It’s not advisable to complete your own tax return if you are self-employed. Good accountants can ensure that your return is prepared properly. They can work to help minimize the work required to maintain records and act as a sounding board for your business.
If you have money owing to you at the end of your fiscal year that will not be paid promptly, set up a reserve for doubtful accounts. It must be specifically related to invoices—it cannot be a general reserve. This reserve can reduce any income earned for the year and reduce your taxes. If the money is subsequently paid, you reverse the reserve at that time and pay tax after you have received the money.
A common problem with many self-employed individuals is that they do not make appropriate quarterly instalment payments. The government sends you a letter telling you what it believes is the right amount. If you do not pay on a timely basis, you will be charged interest. Make sure to pay all of your tax owing by April 30 to avoid other charges.
Capital equipment spending on items such as computers, cellphones, desks, office equipment, fax machines and copiers should be reported as such and an appropriate capital cost allowance claimed to reduce your income.
LOOK AT PREVIOUS YEAR’S RETURN
Before filing your current year’s return, review the previous year’s return to see whether there is some revenue or expense items that you have forgotten.