Most of us don’t find tax time fun, and being self-employed doesn’t help, so here are a few tips for creative workers to take the edge off.
Self-employed people often forget to report a portion of their home as an expense. Alex Di Lello, CPA, is a tax manager at RLB in Guelph. He says you can use a square-footage allocation, so if your studio/workspace is 100 sq. ft. out of a 2000 sq. ft. home, you can claim 5% of expenses including utilities, mortgage interest or rent, insurance, and property taxes, and possibly maintenance. TIP: If the room has another use as well, you can claim a portion of it.
Vehicle expenses are another area self-employed workers tend to forget, Di Lello says. If you travel to a music gig or art show be sure to log your kilometres and the purpose of your trip. RLB has a log book template and other resources for small businesses at rlb.ca. You can also use an app called MileIQ, or the tracker on QuickBooks for phones. TIP: Remember any expense you claim must be incurred for the purpose of earning income.
If you don’t have a benefits plan, you may be able to claim medical expenses. Canada Revenue Agency (CRA) has a listing of eligible expenses and types of medical practitioners. TIP: Remember to keep your health receipts.
Speaking of receipts, Di Lello says people often forget to get receipts when they pay with a credit or debit card, but credit card bills aren’t sufficient records. Although you don’t have to include receipts when you file, you must have them on hand. TIP: CRA will always look at meals and entertainment to ensure they are business expenses.
When you claim expenses, you must have an expectation of income from that activity. If you’re using expenses for your creative work to offset other income or you have very low income for a few years, you might hear from CRA. Also note that honoraria, awards and grants are taxable, with some exceptions for full-time post-secondary students. Institutions and corporations will usually issue a T4A, but you must claim the income even if they don’t.
If you have cash, you’re wise to take advantage of an RRSP or TFSA. Di Lello says people in a lower tax bracket tend to prefer a TFSA because they have the flexibility to pull money out tax-free whenever they need it and their net income may not be high enough to take advantage of the tax-deferral offered by an RRSP. RRSPs make sense if you will be in a lower tax bracket when you take the money out, or if you are planning to use the Home Buyers’ Plan. RRSP deadline: March 2, 2020.
For self-employed people, the deadline for filing is June 15, but if you owe money, you must pay by April 30, so it’s best to file – or guess how much you owe - and pay by April 30. If you don’t pay on time, you’ll be charged a penalty plus interest at 6%. But CRA won’t call you and ask for gift cards or Bitcoin! Don’t forget to plan for CPP: Canada Pension Plan contributions owing catch many self-employed people off guard, Di Lello says.
Free tax help
CRA says if you have a modest income and a simple tax situation, volunteers may be able to do your taxes for free. Go to canada.ca/taxes-help to see if you're eligible and to find a tax clinic near you.
CRA also has a list of certified tax software that is easy to use, fast, and secure. Some are free.
Even if you made no money or almost no money you should file your taxes to qualify for possible benefits and credits.
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