Every entrepreneur and small business is unique, and tax time can bring different challenges. If you are preparing your tax returns, and need a hand, consider using tax preparation software.
There are user-friendly options to help you organize income and expenses and take advantage of tax credits and benefits. These helpful tools can guide you through preparing and filing your personal and business taxes, making tax season less daunting.
Understanding self-employment income
Income as a freelancer or solo entrepreneur can look different for everyone. When you’re self-employed, you should understand what you earned in business income or professional income and the difference between them.
Business income: Entrepreneurs who report business income have inventory and make sales. For example, a baker selling cookies on a buy & sell site or an artisan selling items in an online shop or to a retail store.
Professional income: Earning professional income means you’re governed by a regulatory body. Doctors, lawyers, and architects fall into this category.
Make sure you have a system to document clearly and accurately what funds are coming in, big or small. You can create your own tracking system using software like Microsoft Excel or invest in an online solution. It’s essential to keep track of earnings and expenses, so you can report them accurately come tax time.
Find possible deductions
When you’re self-employed, you can take advantage of possible deductions that lower your taxable income. For example, you can deduct a portion of your vehicle expenses if you use it for business purposes. Or, if you have a dedicated home office, you can deduct a percentage of expenses like utilities, mortgage interest, property taxes, etc. If you’ve kept good records and have receipts, there are many tax-saving deductions you can take advantage of.
If you’re not sure what you can deduct, tax filing software can help. For example, a program like TurboTax can help you determine expenses you used for business purposes, what is eligible, and provide instructions on how to calculate and report your deductions. If you want to see how it works, try using the TurboTax Self-Employed Expenses Calculator to estimate your expenses.
It’s important that you only deduct eligible expenses. If you’re unsure, ask yourself this question: If I don’t buy this, can I sell my product or service? This is a simple way of determining whether an expense is deductible or not.
As mentioned, tax preparation software can help you sort this out. However, if you’re still unsure and you want advice from a professional, consult with an accountant or a tax professional.
Be ready for tax time
Keeping detailed and accurate records of income and expenses throughout the year will make preparing for tax time easier. Remember to keep your receipts and file other important documents you might need to prepare your tax return. For example, tax receipts for charitable donations and records of tax-deductable RRSP contributions you made for that tax year.
You can also use TurboTax’s Self-Employed Tax Prep Checklist to make filing your self-employed return a little easier. It outlines everything you need to look for before you sit down to file.
Here to help
The ATB Entrepreneur Centre has resources that can help you prepare and file your personal and business tax returns. If you need help navigating these resources, or can’t find what you’re looking for, please contact us!
Check out our partners at TurboTax for more information on how you can leverage their tax expertise and get started.