When you're self-employed, you'll need to set aside a portion of your earnings for your income taxes because you pay no source deductions. However, being self-employed does have some tax benefits. Read on for four strategies to reduce your tax bill.
Throughout the year, get in the habit of filing all supporting documents concerning your income and professional expenses (invoices, receipts, etc.). When you visit your accountant, their job will be much easier since all your information will be in order. This could reduce the fees you have to pay. You'll also have all the supporting documents you need in case you get audited.
When you take out a personal loan, you can't deduct the interest you pay from your income taxes. Cash damming allows you to gradually convert your personal debts into business debts, for which interest is fully tax deductible.
Numerous tax regulations govern deducting interest. Consult an accountant or a tax specialist to see if this strategy is right for you. A National Bank advisor can offer you financing solutions and a financial structure to simplify your tax management.
Register for the GST/HST and QST (in Quebec) to charge taxes on the professional services you provide. What are the benefits? When you register, you can obtain a partial refund on the tax you pay for professional expenses.
If your business collects $30,000 or less each year, you can decide whether or not you want to register. However, if your income exceeds $30,000 for any four consecutive quarters, or in any quarter, you must register.
As a self-employed worker, your income doesn't just depend on how much your business takes in—your expenses are also an important factor. You can reduce what you pay in taxes by deducting your business expenses, including costs for office space (even if it's a home office), transportation, communications, heating and business lunches. Keep all your bills and receipts for at least seven years in case you are audited.
Tip: Your RRSP contribution room, borrowing capacity and employment insurance are based on your net income. You should therefore make sure all deductions are justified and indicative of your real income.
If you or your spouse are self-employed, you have until June 15 (rather than April 30) to file your income tax return for the previous year. If you have a balance due, however, interest will be calculated as of May 1. So it's a good idea to do your taxes earlier! You can pay your balance via National Bank online. It's fast and easy.
Want to know more about starting your own business? See our five useful tips!