Tips for last minute self-employed tax filers

A lot of self-employed people in Canada feel the pressure of filing their return. But when you have the right guidance, it can be of great help. In this article we’ll give you some insightful tips about last minute tax filing and how it can be handled smoothly.

Here are three most important points that you should keep in mind –

• The deadline for filing taxes as a self-employed individual is June 15, 2022. To prevent incurring interest and penalties, it's crucial to submit your tax return promptly.
• Utilize a tax checklist to ensure you have all the necessary forms and receipts for filing.
• Maximize your efficiency by registering for CRA My Account and opting for electronic filing through NETFILE, setting yourself up for a smooth and hassle-free tax season.

Who is considered self-employed in Canada?

In Canada, individuals are considered self-employed if they engage in business or professional activities on their own account and are not considered employees of another person or business. Being self-employed means that you work for yourself and are responsible for managing your own business affairs, including taxes, insurance, and other financial matters.

There are different categories of self-employed people in Canada and these include –

• Sole proprietors
• Freelancers
• Artists and creative workers
• Small business owners
• Independent contractors
• Contract workers

8 tips for last minute self-employed tax filers in Canada

1. File your tax on time

Whether your business made profit or not, it is imperative that you file your taxes on time to stay safe from any penalties. If you have a $5,000 tax balance, a 5% penalty equates to $250. Furthermore, for every full month you delay filing after the due date, an additional 1% penalty will be added, up to a maximum of 12 months. In cases where you cannot settle your balance in full, the CRA provides options for payment arrangements.

Québec residents face an extra 5% penalty, and they can also explore payment arrangements if needed.

If you're self-employed, the Canada Revenue Agency (CRA) grants you an extension until June 15, 2022, for filing your taxes without incurring a penalty. However, it's important to note that if you owe taxes, interest will accrue starting from May 2nd. This underscores the importance of filing your taxes promptly and avoiding unnecessary delays!

2. Figure out which category of self-employed do you fall in

For tax purposes, self-employed individuals fall into three distinct categories, each with its own unique tax obligations and intricacies.

• If you operate an unincorporated business on your own, you are categorized as either a sole proprietor or an independent contractor. In this scenario, your tax filing involves using a T1 form and completing the T2125 – Statement of Business or Professional Activities (which conveniently resides within the T1 form).
• On the other hand, if your self-employed venture involves the collaboration of two or more individuals, you are considered to be in a partnership. In addition to filing your personal taxes, you will be required to complete additional forms, such as the T5013, if your business's revenues, expenses, and/or assets reach a certain threshold.

3. You can automate the tax filing process

Managing the myriad details that come with self-employment can be a daunting task. However, simplifying this process begins with the initial step of enrolling in the Canada Revenue Agency (CRA) My Account.

Upon successful registration, you gain access to a wealth of valuable resources. Firstly, you'll find a centralized hub containing your personal information. This streamlines the process of tracking your financial data, making it more efficient and less prone to errors.

CRA My Account also allows you to retroactively amend previous tax returns when necessary, providing you with the flexibility to rectify any inadvertent errors or omissions.

4. Find your industry code to file taxes

After determining your self-employment category, the subsequent task is to locate your industry code. This 6-digit number becomes crucial when completing the T2125 (Statement of Business or Professional Activities) to report your income accurately. It's essential to have this code as it's a prerequisite for electronic filing through CRA NETFILE. Without it, electronic filing won't be possible.

5. Keep a checklist handy

Tax filing season can be really stressful, but staying organized can be of great help. You should keep all the checklists and the documents that you would need to file your taxes handy with you. It will save a lot of time and hassle and you’ll be able to file your taxes as a self-employed person smoothly.

6. Know what you can claim

To deduct or not to deduct? That's the dilemma. While certain expenses are clear-cut, others might be less so. We've compiled a list of some of the key deductions you may qualify for, helping you boost your bottom line.

PRO TIP: Be cautious about expenses that aren't fully deductible. For instance, items used both personally and for your business, as well as meals and entertainment, can only be deducted at a 50% rate (and should be reserved for business meetings with clients, not solitary coffee runs).

7. Double check for accuracy and to avoid audits

Audits are universally disliked. Being accurate and maintaining consistent records constitutes a significant part of the preparation. If your bookkeeping is not entirely current, consider spot-checking your sales against bank deposits as a helpful practice.

For instance, in cases where expenses are recurring monthly, you can estimate your total annual expenditure by multiplying the monthly rate by twelve.

8. Get professional help

If you think that you cannot manage to file your taxes on your own, you can make use of free software online or get in touch with a finance professional who can help you with all the intricacies of filing your taxes.