Tax Time for Freelancers

tax time

 

 

 

 

 

We near that time of year again when completing a tax return looms large. I am old school when it comes to maintaining a record of my expenses and income with a ledger book. I note down every receipt, sale or income in titled columns so that when tax time comes around all I have to do is add up the columns. Yes, I know there are numerous online programs and they do all that for you at the end of the year but I like to have more control and visually ‘see’ my year in black & white. Each to their own as the saying goes.

When we earn money by selling our words to websites and other publishers, the Government Revenue Service states you are a small business owner. Freelance income is self-employment income, and so are any royalties you receive for that book you published or self-published. That can be a good thing, because the self-employed are privy to some tax perks that employees don’t usually receive.

The income must be declared as business income for freelance projects.

Any income generated from freelancing must be declared on your income tax; you have to declare all your worldwide income on your return.

In the U.S., you report payments for freelancing on (IRS) form 1099-MISC (this should be provided to you by any business that has paid you $600 or more in a tax year).

In Canada you declare freelancing payments as business income on Form T2125, which is part of your T1 tax return.

Some costs you are able to deduct include:

  • internet
  • supplies such as printer paper, ink, and other office necessities
  • that laptop you’ve been tapping away on all year
  • software for the computer
  • the fax machine and copier
  • mileage, meals, and entertainment
  • pretty much anything that is ‘ordinary and necessary’ to running your writing business.

Home Office Deduction

As a freelancer, you probably plant yourself at your desk each morning right there in your home. For this reason, you may be able to claim a home office tax deduction based on the percentage of your home that you use for work. For example:

  • If your dedicated work space takes up 15% of the total square footage of your home, you can deduct 15% of your mortgage principal or rent payment, utilities, and insurance.

But if it’s your habit to work at the kitchen table, you’re out of luck because you likely use that room for other things as well as your writing business. Your home office space must be dedicated exclusively to your writing, so clean out that spare bedroom, move in your office equipment and supplies, and get to work

Earned Royalties

If all your income derives from publishing books, you should receive a royalty statement from your publisher(s). This income goes on Schedule C as well.

If you also held down a regular job during the year, you’ll only have to pay self-employment tax on the portion of the income you included on Schedule C. If you had more expenses than income from the publication of your book, this is a business loss. It can reduce the amount of income you have to pay taxes on, even if you earned that income from an employer.

 

Save Your Receipts and Invoices

Save every single receipt and invoice throughout the year. Whether you buy something in store or online, make sure you keep your receipt and file it away. When it is time to file your tax return, it is a lot easier to claim your expenses when you are organized.

The CRA requires you to provide receipts and invoices for expenses you claim. If you are audited, you need to provide supporting documentation to back up your claims. Without documentation, your claims are disallowed and you face penalties and interest.

Budget for Taxes

It is important for freelancers to budget for taxes. Unlike salaried employees, income tax and payroll deductions such as the Canada Pension Plan and Employment Insurance are not withheld at source. You need to contribute the employee portion and the employer portion of CPP and EI, which can prove costly.

A good year for business means a hefty tax bill. Make sure you budget for income taxes during the year. If your marginal tax rate is 30 percent, consider setting aside 30 percent of your earnings, so you are not left scrambling on April 30. If you owe $3,000 or more to the CRA in the current tax year and any of the last two tax years, you must pay your taxes by quarterly installments going forward. Instead of paying your taxes all at once before April 30, you have to pay them quarterly throughout the year.

Contribute to Your RRSP

Freelancers do not enjoy the perks of a company pension plan. CPP and Old Age Security are only supposed to provide a portion of your retirement income. To help supplement your lifestyle in retirement, consider contributing to an RRSP. RRSP contributions lower your tax bill in the current tax year, and your money grows tax-free. You defer paying income tax until you withdraw the money when you are likely to be at a lower marginal tax rate.

What’s your method for completing your freelance tax return?

Any tips for making it easier?

TaxReturn

 

 

 

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Seasons Greetings from Mandy Eve-Barnett

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Wishing all my followers and fellow freelancers a wonderful festive season. No matter which ‘tag’ you place on the holiday, enjoy time with family and friends and recharge those writing batteries for the projects you will work on in 2019.

All the best for 2019 with happiness, success and new connections.

Dress Code for Freelance Writers

With a day job as well as a freelance business, I tend to think of myself as rather a chameleon. When at my day job, I wear suitable clothing in line with the other employees. It is a socially accepted mode of ‘uniform’ in most workplaces, we wear the ‘appropriate’ clothes for the work we are doing. However, when in ‘freelance’ mode there are two options, firstly the working at home in front of the computer can be any of these:

home 1

home 2

home 3

Aren’t these illustrations just the best? We all know, we have dressed like this at one point of another (or constantly!) and it is one of the perks of the digital age that we do not have to actually meet clients per-say on a daily basis but can pick and choose the mode of communication. Some clients might be in another country or state/province and emails, Skype calls etc. allow us contact without leaving the house.

When we are meeting face to face, however then we need to consider how we want to project our ‘freelance’ image. To arrive in any of the above would surely have any client running for the hills. We must dress to impress, give our client a professional image to enlist confidence in our ability and competence. I am listing clothing for women in particular but of course men should consider a suit or smart jacket and casual trousers/pants. 

A business casual look can be a simple chiffon shirt, jersey top, turtleneck or patterned blouse partnered with a blazer or jacket for a smarter look. In cooler temperatures opt for a pea or trench coat or a thicker fabric jacket. Matched with either suit trousers, chinos or a dark-coloured dress, simple skirt. Footwear can be loafers, brogues, pumps or shorter heels. Keep your jewelry understated.

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As with any job interview, we need to ‘look the part’ and show our client we have the credentials to produce a great product, no matter what kind of project that may be.

An extra tip, I use, is to browse the company or person’s website – it can give you an idea of the ‘culture’ and the ‘look’ of their employees. You can tailor your look to match.

What tips can you share about image for a freelancer?

And it’s Published – Journey to the Summit

 So excited to announce the publication of a superb hybrid business-fiction book, I assisted in writing.

Journey to the Summit cover

If you are looking to improve your business marketing, then this is the book for you.

‘This book is dedicated to marketing managers, and CMOs of B2B organizations around the world, who are tasked with bringing transformation to their organizations by creating a functional Marketing Department that is 100% Revenue Driven, while being challenged with the ultimate ‘mission impossible’ on the planet – Sales and Marketing Alignment.This book is also dedicated to CEOs, who know that marketing is critical in bringing them 10X or more exponential growth for their B2B organization, and to VPs of Sales, who are 100% frustrated by the marketing effort. They are praying, each day that their team can help them by bringing them closer to their Annual Revenue numbers.Also, to the Entrepreneurs, CEOs and Business Owners, who are working hard every day to build an organization, who are tasked with exponential growth and who believe that marketing should be doing more than just branding and storytelling. You are not alone, and this book is also for you.’

The Secret’s Out – Hybrid/Business Book Project

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I wrote a unique hybrid fiction/business book over the past several months with a client and it is now ready for pre-purchase. My client and I believe it is the first of it’s kind and I am honored to have been part of that journey.

This project took a while to come to completion but the project itself was exciting, engaging and a learning curve for myself and my client. Working with a client, who has a vision and makes it into a reality is quite the buzz. 

With regular meetings whether in person or via video conference calls, the project was tailored to my client’s vision of how he wanted the book to relay information, some of which was quite complex, in an easy and engaging manner. The final book has made that dream come true.

Journey to the Summit

A Business Novel by Saher Ghattas
Begin your Inbound adventure.

Journey to the Summit is the only book of its kind for the Canadian business landscape — and it’s available for pre-order right now. All our secrets in an engaging, informative format primed to help businesses embark upon successful growth expeditions. Our new book, Journey to the Summit, is officially open! Be among the first to read this business novel compiling the latest in marketing technologies with years of experience solving the challenges of companies seeking exponential growth. Sign up here:
http://bit.ly/2QAp5RH

I hope you will read the book not only for the fictional story but the incredibly useful marketing information, which will propel your business forward.