I started freelancing in May of 2016, which means this year was my first doing business-related taxes. I've never been particularly good at math (though I did get a 94% in my college accounting class if that counts for anything...), and in all honesty, I don't really understand how taxes work. I kind of feel like the government just picks a number out of a hat and that's the amount you get or owe, but that's neither here nor there...
Luckily my mother, who does the accounting for her and my fathers' business, semi-came to my aid and gave me a detailed list of everything I need to include in my 2016 Income Tax spreadsheet. Also luckily, she took pity on me this year and allowed me to lump my stuff in with hers before giving it to her accountant. Next year I know she won't be so generous.
I think it's especially beneficial for those of us who work for ourselves to learn to do our taxes for ourselves. After all, we wear so many different hats running our own business, why not throw on one more? How-to-do-Your-Taxes workshops only run around $200--the same amount you'd be paying an accountant to do your taxes for one year.
Based on the spreadsheets I used for my own taxes, I created 3 worksheets to make starting yours a little easier. By no means am I an accountant, and filling in these worksheets doesn't mean you've finished all your tax work, but whether you decide to hand everything over to an accountant or do them yourself, these worksheets will break down your income and expenses, and make filling out your tax forms a little easier.
Business Expenses
Your business expenses are any incurred expenses relating to your business (revolutionary, right?). If you pay for a website, or any membership fees relating to your work, or even your coffee if you do work at Starbucks, you will get reimbursed for a portion of what you spent on these things. It's important to keep all receipts you plan to claim on your taxes in case you're ever audited, and keep in mind that you probably can't get away with claiming $500-worth of Starbucks. You can download your business expense worksheet here.
In-Home Expenses
Working from home means your home is your office and therefore a portion of your home expenses count as your overhead costs. If you rent, a portion of your monthly rent can be deducted; it's a fairly simple formula. If you own your home though, you'll need to keep track of your monthly condo fees, the interest you paid on your mortgage, your property taxes, and all your utilities, including gas and hydro. Of course, the full amount can't be claimed unless you have a way of proving you spend 24/7 working, so either you or your accountant will have to figure out what percentage of your total home expenses can be claimed as business-related. You can download your in-home expense worksheet here.
Annual Income
Finally, the basis of all of this extra work you're doing: your annual freelance income. Unless you make over $30,000, you probably don't have an HST number, and therefore probably don't charge or pay taxes on the work you do for clients. Unless you're a criminal, you'll probably want to inform the government of all your untaxed work. If you don't have an HST number, don't worry about filling out the subtotal and HST sections of the worksheet. Keep track of your invoices, who you invoiced, and the amount you invoiced in an annual income worksheet, which you can download here.
Keep in mind that you can only start claiming your business and in-home expenses in the month that you started freelancing. Since I started in May, I had to divide my total annual mortgage interest for 2016 by 12 and then multiply that number by 8 months to get my prorated mortgage interest.
My goal in providing you with these worksheets is to help you organize your 2016 taxes so you or your accountant have as little work to do as possible. So good luck with your taxes and may your tax return be ever in your favour.
