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Tax filing tips for self-employed: 2021

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Introduction

If you found yourself starting a business last year during the global pandemic, you aren't alone. Whether a job layoff forced you to try something new, or you had a plan in the works for some time, one thing has probably been on your mind for some time now – taxes. Filing for taxation can be overwhelming, especially when you run a sole-proprietorship. Naturally, the responsibility of keeping the business alive falls on your lap. That means you really do not have the luxury of time and equally cannot afford to make financial mistakes that could lead to serious tax penalties. If you're planning to file your self-employed taxes in Canada for the upcoming season, here are a few tax tips to get you started.

Requirements

Filing your taxes with the Canadian Revenue Agency does require providing certain documents or information. Aside from the basic biodata, the following documents and reference information are essential:

  • Statements of Financial Transactions: By submitting a financial statement, you already certify being in business - that is, you’ve been making profit (hopefully). However, being self-employed means you can work freelance, and you likely have various profit sources. Thus, your financial statement must reflect transactions from all sources of income. Whether you practice a profession, a trade, or industry, provided that profit is the endgame, your financial statement must be inclusive of it. 

  • Summary of expenses: This includes receipts on all service expenses such as purchasing office supplies, phone bills, internet charges, among others. These will be key to lowering your overall tax bill – be sure to keep the receipts.

  • Notice of assessment: The Canada Revenue Agency sends a notice of assessment to all taxpayers, informing them of their taxation data. If you are new to filing taxes, you do not require this. 

  • Tax forms: You must also obtain tax forms corresponding to your status (self-employed). Typically, the T1, T4A, and T2125 are just what you need.

  • Be deadline-conscious: To avoid fines or charges, be sure to send in your income tax filed before the deadline. Check the official channels for up-to-date information concerning the procedure. The deadline for self-employed tax returns for fiscal 2020 is June 15, 2021. However, if you owe tax, CRA will want their money by April 30 – otherwise, they will apply interest starting as of that date.

Before filling these tax forms, you should check in to see if you need a GST/HST number or not. If you do, then you should complete a GST/HST registration before filing.  

Are you exempt from GST/HST?

GST/HST stands for Goods and Services Tax and Harmonized Services Tax. It is a unique business number issued by the CRA to all businesses. However, you are only required to file for these taxes if you have generated revenue figures greater than $30,000. Otherwise, you are exempt because you are technically still considered a small business. If you have broken that plane in sales, keep reading this section!

  • Personal and Business Information: When filing the GST/HST form, some basic information is required. They include your business name, Social Insurance Number, postal code, date of birth, business number, personal and business address, a summary of your business activity. 

  • Registration date: This is calculated as the date when your business ceased to be a small business. That is, when you scaled past the $30,000 in sales. 

  • Annual sales totals: A sum of revenue incurred from all sales subject to taxation. 

Collect all this information and follow the steps provided on the Government of Canada GST/HST website.

You can now fill out and submit the tax forms

You can fill and submit your tax forms online or by mail. The online portal can be accessed through the CRA login services. Otherwise, you can print out and fill the forms and send them by mail to the tax centre mailing address. It is strongly recommended you register for online submissions, as the turnaround is much faster, and the process is streamlined. Regardless of how you file, be sure to fill out and submit the following forms accurately: 

  • T2125 Tax form: This is a declaration of business and professional activities for recording all your business expenses and profits. Provided that you have two sources of self-employed income - as reflected in your financial statement, be sure to obtain two sets of this form, one for each. For clarity, your business expenses are anything along the line of office supplies, vehicle maintenance expenses, etc. It is important to be familiar with your industry code as it is required to complete this form on a side note. 

  • T4A Form: It is also known as the Statement of Pension, Retirement, Annuity, and Other Income. If you work as a self-employed earner and are paid by your clients, you must receive one. A client will occasionally send you a T4 slip describing the total sum (in dollars) paid for each job. 

  • T1 General Form: It is also known as an income tax and benefit return. You will have to complete this to file for an income tax return.

Payment of tax is a civil responsibility all citizens must fulfill. As a self-employed citizen, you are expected to pay taxes as soon as your services begin to draw in revenue. While reporting may be time-consuming, the tips in this article will be a good start and assist you in navigating this process. To avoid heavy fines, ensure that all forms are duly filled out and submitted to the right channel before the set deadline – and as always, if you are unsure, it would be best to contact a qualified tax professional for advice.