Self-employed: tax returns and taxes

People who are self-employed are not exempt from tax obligations. However, there are special measures that apply to them. If you are self-employed, it is important to be as informed as possible about the specifics of your tax situation. That way, you can continue to practice legally. Chapman & Associates informs you about the details of self-employed status as well as its income and tax declaration.


Self-employed status:


First, it’s important to remember what self-employed status means. Simply put, anyone who works for themselves is considered self-employed. In other words, as long as you provide a product or service on your own behalf, the tax system considers you an independent professional.

That said, self-employed individuals are classified into three main categories which are:

  • Sole Ownership: This is when you run a business where you are the sole employee.
  • Independent contractors: This tax status is available to any contractor providing a particular service to a third party
  • Partnership: Partnership: This is when the independent business is formed by you and other members.

As soon as you fit these different categories, you are self-employed. Otherwise, you have employee status under tax law.


Income tax return and taxes for self-employed workers:
The data to provide


The self-employed person must provide a certain amount of data to file a proper tax return. This information is split into three parts which are:

  • Personal information: This includes your full name, date of birth and social insurance number. You must also provide any receipts or documents related to the items you may be reporting.
  • Information related to your profession: name of the company, the code corresponding to your economic activity, the TPS/TVH
  • The income itself
  • Self-employment expenses

Income tax return and taxes:
What are the elements to be declared by the self-employed person?


When you practice as a self-employed person, there are certain items that you must declare to the IRS.
Below is a summary list of some of these:

  • Income from the business: Logically, the self-employed person must declare all the money he receives in the course of his activity.
    In other words, any sale of goods and services must be presented to the FISC.
    Of course, fees are also considered as income that enters the declaration of a self-employed professional.
  • Bank interest: Insofar as the self-employed person has a company bank account, and this generates interest, it must be declared. This is because they also fall into the company’s income class.
  • Commissions: If you are an influencer or an online site, you may be paid to share a third party’s product or service.
    This is called affiliation and in this case, you receive a commission. The amount received must also be declared.
  • Goods received in the course of your business: It is not only cash or checks that constitute reportable income. If you receive goods as remuneration or even simple gifts, you must also inform the tax authorities.

Self-employed tax return and taxes:
What expenses should be reported?


It’s not all about income when you’re self-employed. Your activity also generates expenses. You should also declare them to be in order in your taxation. The expenses declared are then deducted from your income, which in passing allows you to reduce the total amount of tax to pay.

Faced with this reality, one question comes up very often: to what extent is an expense considered deductible? The answer is simple. Any expense incurred in the process of generating business income is considered a deductible expense. In other words, when you spend money for the purpose of generating profits in your profession, you must mention this expense on your self-employed return.

That said, here are some examples of deductible expenses that are typically mentioned:

  • Start-up costs: This includes all expenses related to the acquisition of work equipment, premises, inventory and many others.
  • Legal or accounting fees: These are expenses related to the use of a lawyer or accounting consultant
  • Automobile expenses: These include all expenses for gas, service vehicle repairs, registration, car insurance, etc.
  • Company operating expenses: These include all expenses incurred for business promotion, product delivery, telephone and internet bills, and office supplies.

NB: It is recommended that the self-employed individual not over-optimize deductible expenses. Although this will reduce the total amount of tax, the contribution related to his retirement will also be impacted. It is therefore important to declare all expenses without inventing any. By the way, you can have a more complete list of deductible expenses on the official website of the CRA.


How to justify your expenses as a self-employed person.


To justify expenses to the FISC when you are self-employed, you must provide receipts as well as invoices. It is also advisable to keep a book. To do this, you have mobile apps as well as PC software that allow you to gradually record all expenses and income. This way, you will not have any difficulty in providing receipts at the end of the year.


How to calculate the tax amount when you are self-employed.


To calculate the amount of tax when you are self-employed, you must first provide a statement of all income and expenses from your business.
Then, you have to subtract the expenses from the profits. You will obtain what is called in taxation the net income of your activities. It is on this amount that the various taxes will be deducted.

For your information, the amount of taxes varies depending on the country and region. In Canada, for example, there are two main types of taxes that are deducted from a self-employed person’s net profit. These are:


To make the calculation easier for you, you can use an automatic online tax calculator. This will help you get an accurate and reliable answer as quickly as possible.


Self-employed tax return and taxes:
The importance of the fiscal year


The fiscal year is an important detail of your income tax return. It allows you to accurately delineate the season in which you made profits and incurred expenses. That said, a self-employed person can consider a calendar year as the fiscal period. He or she can also define any 12-month season as such.

As long as you do not refer to the calendar year as your fiscal year, you must submit a forecast of your income at the end of the 12-month calendar year. Therefore, it is possible to have an idea of the tax liability in the coming months. Given the imprecise nature of the forecast, the tax law gives you the opportunity to readjust your tax return on December 31.


The different accounting methods to use for a self-employed tax return


As a self-employed person, you are entitled to two main accounting methods for reporting your income. These are:

  • Cash accounting: as the name suggests, this method consists of making a statement at each receipt or withdrawal of funds from the company’s cash. In other words, income is declared when it is received by the company and expenses are declared after they are paid.
  • Accrual accounting: In this case, you can report your income and expenses at any time, as long as it is within your predefined fiscal period.

Self-employed tax return:
When to do it?


There is a tax reporting deadline that must be met depending on the country in which you practice. In Canada, for example, every self-employed person is required to declare his or her income before April 30 of the year following the taxation to which the declaration corresponds. Despite this, the FISC admits an additional delay
until June 15.

The FISC admits an additional delay until June 15.

In short, here is all the essential information that a self-employed worker must know about the income tax return. If you have independent professional status, do not hesitate to follow these instructions. It is also a good idea to get help from an
expert who will provide you with maximum assistance in declaring your income and expenses.

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