Filing taxes as a self-employed person is relatively more complicated than filing as an employee, and you must do it properly to avoid attracting interest or penalties. But that doesn’t mean you need to stress or stumble through the process.
This guide explains what you must gather to file taxes when working as an independent contractor, which deadlines should be met, and the deductions and credits that will save you money.
Do I have to file taxes as an independent contractor?
As an independent contractor, you need to file tax returns even if you earned only a small sum of money. Canada Revenue Agency (CRA) considers you self-employed if you independently sell products or offer a service in return for money — even if you only do so part-time.
What information do I need to file my taxes as an independent contractor?
To file your taxes as an independent contractor, you will need to gather the following information:
- Your business income and expenses. Specifically, revenue associated with the venture and all expenditures made during this process. This means full receipts in order to prove your claims.
- Your Social Insurance Number (SIN).
- Optionally, your Business Number (BN). The CRA also offers a free BN upon request if you do not have one.
- Proof of wages, salaries, subcontracting and other payments you make to workers as a business expense. This can be in the form of T4A slips or receipts, depending on the nature of your business relationship.
What are my options for filing my taxes as an independent contractor?
You can file your taxes as an independent contractor using one of the following methods:
- Online: The CRA directly offers free online tax filing. Alternatively, you may prefer a third-party tax preparation agency like TurboTax or H&R Block, among others.
- By mail: From the CRA website, you can obtain copies of relevant tax forms to complete by hand and then submit by mail.
- With a tax professional: If you’re unsure about your taxes, it’s easiest to get expert help with filing — it’s also more affordable than getting fined by the CRA. And once you get help, you can ask your tax pro for guidance if you’d like to be self-sufficient going forward.
Standard deductions for independent contractors
Make sure you track the following expenses so you can claim deductions to save the most money filing taxes as an independent contractor in Canada.
- Home office expenses
- Travel expenses
- Professional development expenses
- Marketing and advertising expenses
- Office supplies and equipment expenses
- Vehicle expenses
- Insurance expenses
- Paying wages, salaries, and subcontracting
- Interest on business loans
Tax credits for independent contractors
In addition to deductions, independent contractors may also be eligible for certain tax credits, such as:
- Canada Employment Credit
- Canada Small Business Deduction
- Investment Tax Credit
Tips for filing taxes as an independent contractor
Here are a few tips for filing taxes as an independent contractor:
- You need good records for your income and expenses. This will also make it easy for you to do your taxes easily at the end of the year.
- File your taxes on time. Your personal income tax return, together with the T2125 Statement of Business Activities, is due on June 15. If, however, you have a net tax amount exceeding $3,000 (or $1,800 in Quebec), you have to file your return and pay any remaining amount before April 30.
- Avoid all the deductions and taxes you can. This will, in turn, ensure that you minimize the amount of taxable income and hence the tax bill.
- Consult with an accredited tax advisor if you need assistance on your tax return form.
Bonus tax filing tips for Canadian independent contractors
- Estimate your taxes quarterly. Quarterly tax installments are available to prevent paying a tremendous amount of income tax at once if you anticipate owing more than $3,000 in net tax for the year.
- Use a tax preparation software. There is tax preparation software that will help you calculate your taxes and enable you to file a correct return.
- Save your tax returns. If you make claims for certain deductions or credits, then the CRA may want copies of your past year’s income receipts or statements.
Conclusion: Canadian taxes as an independent contractor
The tax filing process can get a bit complicated. The ideas in this guide serve as a guideline to ensure you complete all the straightforward parts with ease.
To enjoy the most thorough and optimized tax return, contact us today for a free consultation. We’ll hear you out before starting work to save you the most money.
