This is the time of year that I receive emails asking how one goes about filing their taxes as a freelancer.
(Do I need to get a T4? etc.)
It’s really quite simple. While freelancing, did you invoice the company you worked for or did they pay you the same way as a full-time employee and automatically take the taxes from your pay?
Hopefully you invoiced them. And hopefully, you kept every receipt from your purchases for the entire year.
Everything you spend money on during the year is a potential write-off. For example...your car, the gas, parking, insurance, a portion of your home, your meals, even your newspaper and cell phone are (potential) write-offs.
For those of you just starting to freelance or opening your own business, it’s really not rocket science.
Each month, start a new envelope. Nothing fancy, just a regular #10. Throw all your receipts for the month into the envelope. At the end of the month, separate the contents into categories (parking, gas etc.) and add up the totals. Write the totals on the front of the envelope.
At the end of the year, you simply take the 12 envelopes and add the category figures onto a spreadsheet.
Then add up and include your income and all other expenses. Anything and everything you spent money on (rent or mortgage payments, car insurance, hydro, etc.) Put these totals onto the spreadsheet as well. As a rule of thumb, when in doubt regarding a purchase or a payment you made, simply add it to the spreadsheet.
Finally, you have to get yourself a great accountant. Not mediocre. Not one of those kiosks that open in the malls this time of year. A private accountant that has been around the block a few times (you can even add his bill from this session to next year’s spreadsheet).
In my opinion, there are 3 things you should never cheap-out on in life...bedding, shoes, and a great accountant.
Think of it this way, you wouldn't hire an average designer to work on your business so don't hire an average accountant. Their job is to save you money so it's worth it to pay a little more for someone that's great at it.
Bring the accountant the spreadsheet. They will use their expertise and figure out what you can and can’t use.
That’s basically it. It takes a little getting used to but is one of those things that will become a normal part of running your own show. I really believe that this should be taught in every school regardless of the industry. Even as a one day lesson. Why it’s not has always puzzled me.
Hopefully this has helped.