When you’re self-employed, you have to be proactive and set aside enough money to cover your tax bill. If not, you may be in for a shock at tax time!
There’s no one-size-fits-all for everyone, but for most of our freelance clients, we recommend setting aside 20% of your income as a good starting point. (If we do your taxes, we’ll find the percentage truly reflects your expected tax bill.)
2. Not registeringfor the HST
Self-employed people who gross $30,000 in any 12-month period (not calendar year) must register with Canada Revenue Agency to collect HST as soon as they pass the $30k mark. A phone call to CRA’s business line (1-800-959-5525) will get you started. Only YOU are on the hook if you don’t. Even years later, CRA can find you and demand back taxes.
3. Not filing a return because they can’t pay
CRA differentiates between filing a return, and paying the bill. There can be big penalties (i.e., expensive fines) for not filing. Not paying on time only triggers a bit of interest. So don’t miss your filing deadline, even if you don’t have the money. Just file your return on time.
Tip: self-employed people and their spouses get an extra six weeks to file!
4. Filing a very late return without going through the Voluntary Disclosure Program
Have a return that’s more than a year late? And CRA hasn’t asked for it? You can file it under the Voluntary Disclosure Program and avoid paying the fine for late filing. They’ll still charge interest, but it’s much less than the fine, which can hurt!
5. Not reading the letters CRA sends
It’s scary when CRA comes calling. But often you can avoid disaster with just a quick, direct response. CRA letters can be long and filled with info that may or may not apply. Read carefully. Stay calm. Sometimes all they want is a rent receipt!
If you don’t respond fast enough, CRA either changes your return (negatively) or takes more drastic measures. Avoidance won’t make the problem go away. So find your courage, open those letters, and respond.
And the bonus mistake people make: Panic!
Whatever the problem is, we’ve seen it before and it can be fixed. For questions about taxes and a free phone consultation, drop us a line or call.
Sunny Widerman will be giving a presentation at the CMG’s first Freelance Friday workshop in Toronto on February 7th. For more information or to register for that event, check out this post.
