Working for yourself is awesome for a number of different reason. Because you’re only ever answerable to your own schedule, there’s a sense of freedom and self-made ambition that you don’t normally get at an employee gig. Those with job that can be done remotely get to reap the benefits of traveling to exotic, often inexpensive countries while they earn money. And there is no limit to the amount of money you can make – if you can negotiate a contract for it, you can do it.
The one area where conventional employment might have the upper hand is with tax convenience. When you’re an independent contractor, all of a sudden you’re the one looking out for taxes, for deductions, for GST/HST and every other annoying facet of personal finances.
While it can be daunting at first for an independent contractor to take on their taxes, following a few simple tips will ensure that you not only do it right, but that you get every penny you deserve. Here are four tips to help you on your way toward precise, money-saving taxes.
Understand Your Deductions
This is the biggest piece of advice for contractors, one that has the potential to save you a lot of money. The government taxes independent contractors pretty heavily on their income, almost with the assumption that you are going to deduct all that you should. So, don’t be timid: deduct everything you can.
If you use your home for part of business, either as workspace or to host clients, you may deduct a portion of rent or mortgage, as well as utilities, supplies, etc. That’s a big one. And vehicles can be partly deducted too, which leads to the following point…
Lease Your Vehicle for Maximum Deductions
People always ask, should you lease or buy business vehicles for maximum savings, and the answer is – as far as taxes and monthly payments go – it makes more sense to lease. You can deduct a portion of your leased vehicle commensurate with its business use. In other words, if you used the van half the time, you can deduct half the cost on your taxes.
That equals some pretty sizeable savings. You might be on the fence about privately leasing, but commercial leasing just makes the most sense financially.
Keep Business-Related Entertainment and Travel Receipts
Hold on to these receipts. Any time you go out with clients or colleagues. Any time you hail a cab to the airport, or stay in a hotel for a client meeting, or go for dinner with the boss, you should keep receipts. It may feel stingy at the time, but come tax season, when those receipts accumulate and save you hundreds or thousands of dollars, you’ll be thankful you did.
Know When to Collect & Charge GST/HST
Finally, here’s a quick tip to save you from getting dinged on sales taxes: once you hit the $30,000 mark for the year, you need to start charging and collecting HST/GST. You will have to pay it either way, but it’s up to you to charge your client/customer/boss for it, so don’t lose out.
Taxes are probably the least sexy thing about working for yourself, but it’s a necessary facet of life. Follow these easy tips, and you might be able to afford a vacation courtesy of the tax agency.