Tax time when you’re self-employed can be stressful, but you’ll feel more peace of mind if you take the time to understand your business expenses as a creative entrepreneur, and it could help you save money on your taxes too. Here are our top four tax tips for creative entrepreneurs.
Determine your revenue
Creative entrepreneurs and artists tend to have fluctuating incomes, which can make it tricky to keep track of income. This process is much easier if you set aside time to record your income once or twice a month. So you don’t forget, you could book an hour as a recurring event in your calendar. Find a system that works for you, whether it’s an online bookkeeping system or a simple spreadsheet. If you’re using a spreadsheet, it’s helpful to have a column for your income, GST/HST if you’re collecting it, as well as columns with the date you invoiced, and the date you received payment. Depending on your preference, you can count your income according to the tax year you did the work, or the tax year you received payment for the work — just make sure you categorize all your payments using the same method. If you’re sending invoices for freelance contracts or gigs, ensure that you’re documenting your income clearly by client name, work description, invoice amount and invoice number, in the off chance that you get audited. (If you’re just keeping track of your incoming Interac e-Transfer™ history, you might miss out on payments or forget whether a payment was for income or an expense).
Break down your business expenses
Understanding what does and doesn’t qualify as a business tax deduction is one of the most important (and confusing) aspects of filing taxes. When you’re self-employed, keep track of any business-related expenses that you have incurred. If you’re not sure what expenses to deduct, try using the TurboTax Self-Employed Expenses Calculator to estimate your expenses. Depending on how you set up your business, you may be able to count part or all of your phone and internet bills, office items like printers and paper, a percentage of your car payments, meals with clients, and more. Keep your receipts, paper and digital, so you’re able to identify potential deductions and appropriately claim your expenses when the time comes. Depending on the complexity of your situation, it’s always a good idea to consider working with a bookkeeper or tax professional to help you figure out what counts as a business expense and how much of the cost you can write off when you file your tax return. (For example, while you might only be able to count 50% of a restaurant meal as an expense, you might be able to expense the entire cost of your new laptop.)
Consider getting GST/HST number, if you don’t have one yet
If you’re just starting out, or working for yourself only casually or part-time, you may not yet be collecting and remitting GST/HST. But if your sales exceed $30,000 per year, you are required to collect GST/HST from clients/customers, and remit it to the government at tax time. This chart from the Canada Revenue Agency can help you determine if you need to collect GST/HST. Whether you’re a sole proprietor, working as a contractor or freelancing, it can be beneficial to register your business for GST/HST collection before hitting the $30,000 threshold. This will save you hassle down the road if you hit the threshold unexpectedly. Register online by visiting the Business Registration Online (BRO) program page on the Canada Revenue Agency website.
Just as you plan new projects and bookings for the months ahead, you can plan ahead for your taxes. Take advantage of the knowledge our team at the Branch for Arts & Culture has to offer; Discussing options that can work for your business, goals and lifestyle with our experienced Culture Bankers can make a big difference as you prepare your return both now and in the future. Reach out to our team here.