Self-employment Tax Return
I am self-employed. Should I claim my income?
How can I claim my expenses?
What information is needed to file my taxes?
If you are self-employed, you must claim the total income that you earned during the tax year. You also can claim the expenses directly related to your work. We Prepared a template for you to keep recording your business expenses, which makes it easier to file your taxes during the tax season.
*** Note: If your income exceeds $30,000 (CAD) in a single calendar quarter or over the previous four (or fewer) consecutive quarters, you must register your business on the CRA system, and get your business number. Consequently, you need to also register for GST/HST number once you have your business number and start charging clients for GST/HST. You may find more information on the CRA website.
You should provide your tax preparer with the required information such as
(1) The name of the business,
(2) The address if it is different from your home
(3) The business number if your revenue is more than $30,000 (CAD),
(4) Your main product or service you are offering,
(5) Whether the income is business type or commission type,
(6) Total gross income including sales revenue, commission, and fees such as GST/HST collected or collectible
If you are charging for GST/HST, keep the record of the total GST/HST amount collected or collectible in the tax year.
As a self-employed, you may encounter two types of expenses:
(1) Direct expenses, such as purchases during the year, direct wage cost, and subcontracts.
(2) Indirect expenses, such as advertising, meals & entertainment, bad debts, insurance, interest, business tax, license, and membership, office expense, office stationery and supplies, professional fees (includes legal and accounting fees), management and administration fees, rent, repair and maintenance, salaries, wages and benefits (including employer’s contribution), property taxes, travel expenses, utilities, fuel cost (except for motor vehicles), delivery, freight and express, motor vehicle expenses, convention fees, private health services plan premium and other expenses.
If you use your car or cellphone for your business, you need to calculate the proportion of your car usage or cellphone usage which is related to your business. You need to provide your tax preparer with information such as the opening Km at the beginning of the tax year, the closing Km at the end of the tax year, and the total Km driven for the purpose of the business. The business use percentage is calculated as below:
The business use percentage = total Km driven for the business/ Total Km driven in the tax year
You need to also keep track of your mileage each time you use your car. It means writing down the opening and closing Km when you start and finish a shift on the specific days you are working. CRA sometimes asks for the mileage report, so it is highly suggested to record it consistently. You can find the Mileage report template here!
Note that you should provide all the expenses in total over the tax year (Business + Personal).
For long-term tangible assets, such as office equipment or furniture, which benefit you over a year, you can claim asset depreciation each year you have your business. In that case, you need to inform your tax preparer about the date you purchased your assets, the purchased price for each asset, and the last year’s UCC (Undepreciated Capital Cost) if you claimed depreciation last year. This also applies to car depreciation if you are using your car for the business and claiming motor vehicle expenses.
If you use a part of your home to do your business, you can claim home office expenses. You may find more information on the Home Office Expense blog.
Having all this information will help your tax preparer to fill out T2125 for self-employment and get your taxes done!
Unlike employees, no taxes and CPP are deducted from your income monthly. That is why self-employed usually end up with an amount owing. It is suggested to put some money aside each month or each quarter (Approx. 30 -40% of your net income before tax) in order to lift the pressure of paying a considerable amount of money at the end of tax season.
If you have any questions regarding self-employment tax returns, contact us at [email protected]!