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As a freelancer, your family and friends may imagine you spend your days at the beach writing e-books or developing graphics. People, however, never witness the humdrum duties of generating leads, invoicing, or filing taxes. When tax season begins, self-employment income is far more complicated to record than job income. In addition to collecting tax credits, you must calculate your company income and costs and your HST/GST and PST liabilities. Accotax accounting firm can help you with this, so contact them today.
Business expenditures for self-employed individuals
Any cost made to produce money is deductible in Canada. Any money you spend to run or expand your freelancing business is tax deductible.
Work-from-home office costs for your business
Working from home has several advantages for a freelancer. Not only do you have greater control over your schedule, but you may also deduct a portion of your rent. There is, however, some mathematics involved. Divide the total square footage of your apartment or house by the square footage of your workplace space. This figure represents the entire amount of the deduction. For example, if your home office takes up 10% of the space in your home or apartment, you can deduct 10% of your entire monthly rent as a tax deduction.
Current expenses are generally deductible in the year they are incurred, but capital expenses are partially deductible each year during their useful life. This is referred to as capital cost depreciation or allowance.
It is critical to understand that if you utilize your workplace for personal reasons, you must reduce the proportion you apply to your costs. For instance, if you utilize your workplace for 40 business hours per week and the remainder for personal reasons, divide 40 by 168 (the total number of hours per week). This equals 23%. Multiply this proportion by the area-based home office percentage.
Rent vs. mortgage deductions for freelancers
Before deducting your home office expenses, it is critical to understand the distinction between rent and mortgage payments.
Renters can deduct their rent from their home business deduction. If you have a mortgage, you must figure out your capital cost allowance using the purchase price and current market value of your home.
Tax breaks for bad debts
A bad debt is money owing to you that has been considered uncollectible and written off. You can deduct a receivable that cannot be paid but has been recorded as income.
Expenses for professional growth and education
You can deduct professional development and educational costs as a freelancer to enhance your career and business.
