Canadian freelancer here. What do I need to know about taxes?
March 8, 2014 6:03 AM Subscribe
I've just signed on with a couple of online firms that have a team of freelancers and then assign work to them. What do I need to know about taxes?
I am in Ontario.
I am not currently sure how much money this will lead to but I assume I should be saving a percentage of my paycheque for taxes at the end of the year. How much? 40%? Do I need to account for GST and HST?
I'm also not sure if the fact that I am working for these companies makes a difference in my status. I'm not completely freelance in that I am out there hustling for my own gigs, but as neither of these companies are based in Canada they won't be deducting taxes off of my paycheque.
What should I be doing in terms of bookkeeping? What information do I need to have available? Again, I know that I should keep all of my invoices and any expenses, but what am I likely to forget here?
I am also employed full-time at a regular job day job that does deduct all the appropriate taxes and all that. Does that affect anything? Should I be taking steps to keep the income from my day job and my freelancing work separate?
I don't have a proper home office or anything like that. I just work on my laptop wherever. What deductions should I keep track of?
Finally, is there anything else I don't know? What mistakes do first-time freelancers in like situations make? For what it's worth I do have an accountant but I still want to be prepared.
I am in Ontario.
I am not currently sure how much money this will lead to but I assume I should be saving a percentage of my paycheque for taxes at the end of the year. How much? 40%? Do I need to account for GST and HST?
I'm also not sure if the fact that I am working for these companies makes a difference in my status. I'm not completely freelance in that I am out there hustling for my own gigs, but as neither of these companies are based in Canada they won't be deducting taxes off of my paycheque.
What should I be doing in terms of bookkeeping? What information do I need to have available? Again, I know that I should keep all of my invoices and any expenses, but what am I likely to forget here?
I am also employed full-time at a regular job day job that does deduct all the appropriate taxes and all that. Does that affect anything? Should I be taking steps to keep the income from my day job and my freelancing work separate?
I don't have a proper home office or anything like that. I just work on my laptop wherever. What deductions should I keep track of?
Finally, is there anything else I don't know? What mistakes do first-time freelancers in like situations make? For what it's worth I do have an accountant but I still want to be prepared.
Best answer: The type of arrangement you describe certainly sounds like you're self-employed (as opposed to an employee), but if you want more guidance in this area you can consult this document.
Most freelance services are GST/HST taxable, unless you're considered a small supplier. Generally speaking, you wouldn't be responsible for charging your customers HST until you achieve gross revenues of $30,000 within any four consecutive calendar quarters. Your accountant can help you determine when you need to register for HST, but it's helpful if you keep track of how much you bill your customers in each quarter. Keep in mind that although you may be required to charge your customers GST/HST at the applicable rate, you may be able to remit less than this to the government as a result of GST/HST you pay on your expenses, or by electing to use the Quick Method of accounting. An accountant or tax professional can advise you on the most advantageous option for your situation.
To determine the amount of money you should be putting aside for taxes depends very much on the total earnings you expect for the entire year. Since you're both an employee and self-employed, you'll want to consider the combined earnings from both sources. You'll also want an estimate of the CPP, EI, and income taxes that you expect your employer to withhold. If your earnings from your employer are relatively stable, you can use your T4 from the prior year as a guide. Showing your accountant or tax professional your prior year tax return can also help build an accurate estimate of how much money you need to save for taxes this year.
One area that I see many self-employed individuals forget is the CPP contributions that are required on self-employment income. As an employee, you pay CPP at just less than 5% of your salary and your employer contributes an equal amount to the government on your behalf. As a self-employed individual, you're responsible for both the employee and employer portions (i.e. you remit CPP at just less than 10% of your net income)
The single most helpful thing you can do to get organized for tax time is to organize your revenue and expense information into a simple spreadsheet. Detail the date of the transaction, the vendor/customer name, the amount (with and without sales taxes), and a 2-3 word description of the transaction. Your accountant will thank you!
As for deductions, since you work from home you can deduct portion of your living costs. This typically includes rent/mortgage interest, utilities, insurance, repairs and maintenance to your home, and equipment you need for your business (laptop, printer, scanner, copier, etc). If you owned these items prior to starting to freelance, you can estimate their market value at the date you started freelancing - Craigslist ads are a great source of information for this (save a copy of them for documentation purposes).
posted by bkpiano at 8:20 AM on March 8, 2014 [2 favorites]
Most freelance services are GST/HST taxable, unless you're considered a small supplier. Generally speaking, you wouldn't be responsible for charging your customers HST until you achieve gross revenues of $30,000 within any four consecutive calendar quarters. Your accountant can help you determine when you need to register for HST, but it's helpful if you keep track of how much you bill your customers in each quarter. Keep in mind that although you may be required to charge your customers GST/HST at the applicable rate, you may be able to remit less than this to the government as a result of GST/HST you pay on your expenses, or by electing to use the Quick Method of accounting. An accountant or tax professional can advise you on the most advantageous option for your situation.
To determine the amount of money you should be putting aside for taxes depends very much on the total earnings you expect for the entire year. Since you're both an employee and self-employed, you'll want to consider the combined earnings from both sources. You'll also want an estimate of the CPP, EI, and income taxes that you expect your employer to withhold. If your earnings from your employer are relatively stable, you can use your T4 from the prior year as a guide. Showing your accountant or tax professional your prior year tax return can also help build an accurate estimate of how much money you need to save for taxes this year.
One area that I see many self-employed individuals forget is the CPP contributions that are required on self-employment income. As an employee, you pay CPP at just less than 5% of your salary and your employer contributes an equal amount to the government on your behalf. As a self-employed individual, you're responsible for both the employee and employer portions (i.e. you remit CPP at just less than 10% of your net income)
The single most helpful thing you can do to get organized for tax time is to organize your revenue and expense information into a simple spreadsheet. Detail the date of the transaction, the vendor/customer name, the amount (with and without sales taxes), and a 2-3 word description of the transaction. Your accountant will thank you!
As for deductions, since you work from home you can deduct portion of your living costs. This typically includes rent/mortgage interest, utilities, insurance, repairs and maintenance to your home, and equipment you need for your business (laptop, printer, scanner, copier, etc). If you owned these items prior to starting to freelance, you can estimate their market value at the date you started freelancing - Craigslist ads are a great source of information for this (save a copy of them for documentation purposes).
posted by bkpiano at 8:20 AM on March 8, 2014 [2 favorites]
Check that your day job contract allows you to freelance.
posted by scruss at 9:54 AM on March 8, 2014
posted by scruss at 9:54 AM on March 8, 2014
Response by poster: Scruss, I checked and it does, so long as I don't promote myself to our clients. (It's in a completely different field and I have a completely different role.)
Thanks, bkpiano--that's very comprehensive. Estimating what I will make is very difficult at the time. I am salaried at my day job so that's fine, but I have no idea how much editing work will be thrown my way. I know it will be variable and that it will be slower to start but that's about it. That's why I was hoping for a good ballpark figure that I should be setting aside from each cheque.
posted by synecdoche at 11:25 AM on March 8, 2014
Thanks, bkpiano--that's very comprehensive. Estimating what I will make is very difficult at the time. I am salaried at my day job so that's fine, but I have no idea how much editing work will be thrown my way. I know it will be variable and that it will be slower to start but that's about it. That's why I was hoping for a good ballpark figure that I should be setting aside from each cheque.
posted by synecdoche at 11:25 AM on March 8, 2014
At a minimum, knowing what your gross salary is from employment will let you know what tax bracket you're in. From that you can determine a) what percentage of each freelance job to set aside as taxes payable and b) how much in freelance earnings you can make before you bump up to the next tax bracket.
This is relatively simplistic because it won't give you a precise tax liability (because it ignores deductions), but it will give you a worst case scenario.
posted by bkpiano at 1:39 PM on March 8, 2014
This is relatively simplistic because it won't give you a precise tax liability (because it ignores deductions), but it will give you a worst case scenario.
posted by bkpiano at 1:39 PM on March 8, 2014
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posted by BozoBurgerBonanza at 7:54 AM on March 8, 2014