Talent Development Centre

Category Archives: Independent Contracting

All Talent Development Centre posts for Canadian technology contractors relating to independent contracting.

Terrible Tax Advice Exists — Here’s How to Spot It

This post by Janet Berry-Johnson originally appeared on the Freshbooks Blog in March 2012

Terrible Tax Advice Exists—Here’s How to Spot ItHow do you know you have a great accountant? He has a tax loophole named after him… All jokes aside, tax is a complex subject and, despite decades of talk about simplifying the tax code, it just seems to get more confusing each year. After a decade of working in public accounting, I can’t count how many times clients came to me to ask about sketchy tax advice they’d received from dubious sources.

“My neighbor says Social Security income isn’t taxable.”

“My girlfriend’s dad told me I can deduct all of my vehicle expenses if I set up an LLC.”

“I saw an ad on TV that promised me a bigger tax refund than the competition.”

“I heard that paying taxes is voluntary.”

When you’re seeking out sound financial answers, be wary of the source. Next time someone offers their tax advice, look out for these 8 red flags.

  1. The Advice Sounds Too Good to be True

This kind of advice usually involves tax-free income or being able to deduct personal expenses.

According to the IRS, all income is taxable unless the law specifically says it isn’t. Life insurance proceeds, scholarships, gifts and inheritances, child support payments, welfare benefits and damages for physical injuries or sickness are all types of income that may not be taxable. However, there are a few situations where they might be. When in doubt, consult with a qualified tax pro.

Personal expenses are rarely deductible. Some common exemptions are home mortgage interest, real estate taxes, medical expenses and charitable contributions. They’re allowed as itemized deductions on Schedule A of your Form 1040. Other expenses for your personal residence or vehicle are only deductible if they are used for business. If a friend tells you he writes off all of his home or vehicle expenses, he’s practically telling you he’s committing tax fraud. Don’t take tax advice from a crook.

  1. The Advice Lacks Context

Above, we mentioned that certain types of income are usually non-taxable, but may be taxable under certain circumstances. The tax code is rarely absolute. When you read the code, you’ll see a lot of words and phrases like “generally,” “except under certain conditions,” “usually” and “in most cases.”

Most tax pros joke the answer to any question starts with the words “that depends.” Be wary of any advice that doesn’t take your unique situation into account.

  1. You Have Difficulty Understanding It

The tax code is complicated, but a good tax pro should be able to explain any basic rules, deductions and credits that apply to your return.

Remember: you are responsible for everything on your tax return, whether or not you paid someone else to prepare it for you. If you don’t understand something, ask! If you’re getting a much larger return (or owe more money) than expected, consult someone and find out why.

  1. There Might Be a Conflict of Interest

Look out for tax advice from people who are seeking to receive a commission or kickback. Some tax pros are also qualified to give financial advice but avoid taking advice that comes with an ulterior motive. The person might suggest you invest in a real estate venture that they hold a stake in or recommend financial products for which they receive commissions or referral fees.

Don’t be afraid to ask, “How will you benefit from this?” if you suspect the advice is not in your best interest.

  1. The Advice Suggests Taxes is Voluntary

No matter how many times these arguments get shot down in court, some people continue to claim that the payment of federal income taxes is “voluntary.” This claim is based, in part, on the fact that the IRS itself describes the way we file and pay federal taxes as “voluntary compliance.”

As the fact-checking website Snopes points out, “common sense dictates that if paying income tax were really voluntary, that tidbit of information wouldn’t be known to only a small cadre of tax protesters while millions of other Americans annually forked over considerable amounts of money they weren’t obligated to pay.”

As numerous tax court cases have shown, neither the obligation to file a tax return nor the payment of income taxes is voluntary. File your return and pay what is owed. Otherwise, you’ll soon find out just how mandatory paying taxes really is.

  1. The Advice is Referred to as a “Tax Shelter”

There are a few bonafide tax shelters such as those related to oil and gas exploration and development. However, most are at least bad deals from a business viewpoint, and at worst they violate tax law. Any business deal that needs to be structured as a tax shelter to be profitable is not a sound business deal. Good business deals show profits before tax considerations.

There are also tax shelters that promise you’ll receive $400 in deductions for every $100 you invest (or some similar “too good to be true” scenario). The tax authorities are constantly investigating such tax shelters. If you get caught avoiding income taxes by illegal means, you’ll have to pay back taxes, plus interest and some hefty penalties.

  1. Someone Promises You a Big Refund… Before They Look at Your Info

Every year during tax season, the commercials, ads and billboards that promise huge tax refunds begin to flood in. No accountant can get your refund faster or bigger than anyone else. You are entitled to the same refund, whether you prepare the return yourself or hire a professional.

Anyone promising they’ll get you the biggest refund may be padding your return with credits you’re not entitled to. Don’t fall for the hype.

  1. You Receive No Advice at All

Even if you normally prepare your own tax return, you may occasionally run into a new situation and need help. Major life changes, such as selling real estate, buying your first home, starting a new business or adopting a child usually means significant changes to your tax filing.

Don’t be afraid to seek out the advice of a professional. Even if you want to prepare your own return, most tax pros will be willing to sit down with you to answer questions and offer advice on your unique situation. The hourly rate they’ll charge may be well worth avoiding an audit—or paying a penalty for filing an incorrect return.

If you’re unsure, seek that advice from a certified and experienced tax pro. Look for someone with a credential, such as a CPA or EA. These professionals are well-trained, held to a code of ethics and required to maintain up-to-date knowledge.

At a minimum, all tax preparers in the United States are required to obtain a Preparer Tax Identification Number (PTIN). You can use this search tool available on the IRS website to find a preparer who holds a professional credential or voluntarily obtained a certain number of continuing education hours each year.

Getting professional advice is more expensive than getting advice from your skateboard buddy, but think of it as insurance: pay a small premium today to avoid an expensive disaster tomorrow.

About the Author
Janet Berry-Johnson is a CPA and a freelance writer with a background in accounting and insurance. Her writing has appeared in Forbes, Parachute by Mapquest, Capitalist Review, Guyvorce, BonBon Break and Kard Talk. Janet lives in Arizona with her husband and son and their rescue dog, Dexter. Outside of work and family time, she enjoys cooking, reading historical fiction, and binge-watching Real Housewives.

The T4 and T5 Deadline is Approaching

The T4 and T5 Deadline is ApproachingWhether you’re an independent contractor who receives a salary from your business or a contractor who receives compensation through dividends, you’ll want to pay attention to this reminder.

The Canadian T4 and T5 filing deadline is the last day of February, which this year is Tuesday, February 28th. Sure there are still a few weeks and February feels like the longest month of the year, but if you’re like many others, procrastinating on accounting comes fairly easily. At the very least, take a minute to create a plan and schedule some time to get this task completed.

While we always encourage and strongly recommend you seek advice from an accountant, here are a few other resources:

Happy filing!

Are You Awesome or Annoying? (Video)

If given the choice, we hope that you would prefer to be awesome rather than annoying, especially in the eyes of recruiters and clients when they’re interviewing you for a gig. Of course, we all think we’re awesome, but are you really that great… or are you kind of annoying?

Don’t stay up all night worrying about what recruiters think of you. Instead, have a look at this video we created with input from our recruiters and confirm if they think you’re awesome or annoying. If you fall in the annoying category, perhaps it’s time to change some habits.

This CRA Mobile App Will Help with Your 2017 Taxes

This CRA Mobile App Will Help with Your 2017 Taxes2017 is in full swing! Most people are back from holidays (if they were fortunate to take them), projects are moving again, recruiters are calling, and tax season is approaching. As you start to look at your 2016 books and consider working on your taxes, you may be realizing that you could have done a better job at staying organized in that area (and hopefully you are setting a goal to keep up-to-date in 2017). Vice-versa, you could be super stress-free right now because you were well prepared at this time last year.

Regardless of your situation, a new year means a fresh start to get organized. We can’t help you with your 2016 taxes, but we can give you a boost for this year. The CRA created a mobile app that lets independent contractors create custom reminders and alerts for key CRA due dates related to instalment payments, returns, and remittances. Download the iOS, Android, or BlackBerry version, or check out all of CRA’s mobile apps here.

2016 in Review: Business of Independent Contracting

2016 in Review: The Business of Independent ContractingIt’s well-known that successful independent contractors are hard workers, experts in their field and know the best ways to keep a steady flow of work. Something often over-looked by an outsider is all of the extra work an independent contractor has to do just to manage their business. Since we know that IT contracting goes beyond searching for jobs and working on projects, the Talent Development Centre is filled with helpful business tips and contracting advice.

Taking the Leap into Independent Contracting

Just getting into contracting can be a scary endeavor, which is why we posted these articles to help IT professionals in that situation:

Managing Your Independent Contracting Business

We also shared these posts to help manage the business once it’s moving:

Inside Scoop from Eagle’s Executive Team

One of the greatest benefits of the Talent Development Centre is the inside scoop we provide from our executives, who work closely with industry associations. As a result, 2016 also saw these policy-related articles:

What did we miss in 2016? Use the comments below to tell us what you want to learn more about next year.

Want to Start a Business While Working Full-Time?

You Can — Just Keep These Tips in Mind

This post by Nellie Akalp first appeared on the Freshbooks Blog on October 20th, 2016

Want to Start a Business While Working Full-Time? You Can—Just Keep These Tips in MindWhether you’re about to venture out on your own as a solo professional or launch a new business, it’s often easier to lay the groundwork while still employed. The stability and steady paycheck associated with full-time employment comes in handy when you’ve got real-world responsibilities like a mortgage and student loans—or you just want to eat something other than ramen every day.

Working on a business or freelancing while still at a full-time job builds your experience, confidence and project pipeline. You get to explore the different aspects of solo work and see if you enjoy wearing all the hats that come along with business ownership. As they say, you need to learn to walk before you can run. And staying employed while you learn the ropes can help you do this.

Balancing a job and a budding business is possible, but it does take some careful consideration—including legal, personal and professional matters. If you’re thinking about starting a business while keeping your day job, here are 5 things to keep in mind.

  1. Check Your Employee Contract

Before you begin taking on side projects, you should become very familiar with your employee contract and/or handbook. Some companies include non-compete clauses, which can mean you aren’t allowed to accept work on the side. The strictest clauses are usually found in ad and creative agencies who don’t want their employees to poach company clients.

Poring over legal fine print is no one’s idea of a good time, but it is essential. If you’re caught breaking the terms of your contract, you can be fired—even sued. Fighting a lawsuit while unemployed isn’t the best way to help get your small business off the ground. So, read your employment agreements carefully. If the wording seems vague, you can decide for yourself whether you’d like to approach your boss or HR for clarification, or keep your plans to yourself.

  1. Give 110% to Your Day Job

No matter how excited you are about your new venture, you’re still committed to your current job and company. It will be obvious relatively quickly if you aren’t holding your own in the workplace. This means staying on top of deadlines, getting to meetings on time, being enthusiastic—basically just doing your job as well as you always have. Underperforming at the office can hurt your professional reputation and long-term prospects.

There’s one important difference now. Since your new business is going to take up most of your spare time, you can’t stay late or work weekends for your “day job.” This means you need to make every minute in the office count. Master the arts of prioritization and delegation in order to get as much done as possible during your normal work hours. These are essential skills for being a freelancer and entrepreneur, anyways.

  1. Create a Disciplined and Regular Routine

There are only 24 hours in a day, so you’ll definitely be feeling a scheduling crunch when you first start out. Try to develop a steady rhythm for working on your new business, setting time aside in the evening, early in the morning and on your days off. Creating a regular schedule will help you stay disciplined. You need to make time to work on the business whether you have projects or not—there’s always important work to do such as creating your business’ website, networking or hustling for new business.

If you are struggling to find time to work on your business, take a careful look at the root cause. It could be circumstantial; for example, you’re just really busy right now for a major project at work, but things will quiet down soon. Self-employment requires a lot of discipline, self-direction and self-motivation. It’s very different than previous experiences with a boss or professor. This means it is important to identify early on if the solo work style is right for you.

  1. Treat Your New Venture as a Legitimate Business

You may still be a full-time employee, but the minute you accept money for your work, you’re also a business owner and entrepreneur. This means you need to treat your side work as a legit business—and learn all the responsibilities that come along with owning a business, including how to organize your finances, report your income and pay your taxes.

This would be a good time to meet with a CPA or tax advisor who is familiar with the needs of small business owners and freelancers. Setting up good practices early will help you scale later. One interesting point is that if you form a business and it takes a loss during the first year, you can actually deduct that loss to offset your income from your regular job (talk to a CPA/tax advisor for the details).

In addition, consider creating a formal business entity (such as a Limited Liability Company) to help lower your personal liability should your side business be sued or can’t pay its liabilities.

  1. Determine When You’ll Dive into Solo Work Full-Time

As your business grows, you’ll surely experience periods of intense work overload. At this point, you will need to decide if it is better to quit your job or turn down new client projects. How do you know if it’s time to start working on your own full time? It’s not an easy question to answer, but here are a few thoughts…

Unless you’re willing to blow through your savings or take out a line of credit, you shouldn’t consider leaving your job until your business can bring in as much income as your current job (or close to it or at least enough to meet your needs). That’s the practical consideration.

In addition, it may be time to rethink your situation if you find yourself so excited about your new business that it’s hard to muster any enthusiasm for your day job. This can drain you personally and professionally and you don’t want to just stick around until your employer kicks you out. If you’re having a hard time going to work each morning, then it’s time to accelerate your new business. Figure out how to build a runway of clients and have some cash flowing in—then take the jump.

About the Author: Nellie Akalp is a passionate entrepreneur, small business expert, professional speaker, author and mother of four. She is the Founder and CEO of CorpNet.com, an online legal document filing service and recognized Inc.5000 company. At CorpNet, Nellie assists entrepreneurs across all 50 states to start a businessincorporateform an LLC, and apply for trademarks. She also offers free business compliance tools for any entrepreneur to utilize. Connect with Nellie on LinkedIn.

Independent Contractors Need to Volunteer

Here’s Why IT Professionals Need to Volunteer in the Gig Economy

Here's Why All Independent Contractors Need to Consider Volunteer WorkGiving back to the community is an activity that every citizen should do, at whatever capacity they can. In some cases that involves donating money, but it should also include donating your time. In addition to the core functions of local community groups and charities, independent contractors and freelancers are sometimes asked to volunteer their own professional services. Regardless of what kind of work you do, just a few hours of free work can go a long way in helping a charity or non-profit organization get closer to accomplishing their goals. In addition, there are countless benefits and rewards that can come to you, both personally and professionally.

What Do You Gain from Volunteering?

As selfish as it may feel, every volunteer gets personal gain from putting time into their community, whether or not they recognize it. For example:

  • Being involved and doing the right thing brings personal satisfaction.
  • Building a better community not only is great for your family but can raise the value of a home.
  • It’s an opportunity to meet the “who’s who” in your area, including business owners and politicians.
  • It brings new challenges when you feel life is getting dull.
  • The change in routine helps to get away from regular life stresses and recharge your batteries.
  • You can make new friends and improve your social life.
  • It provides an overall perspective on what you have in life, which can make you happier.

How Does Volunteering Help Your Business?

Beyond the personal benefits of volunteering is the professional value that can also come with it. Independent contractors can gain significant traction for their business, by simply finding a cause they love and putting in a few extra hours.

  • Networking: Industry events get bland and you start to only see the same people. Volunteering opens you up to a whole new set of professionals from different backgrounds and industries.
  • References: Speaking of the people you meet, some of them will make valuable character references and, in some circumstances, can speak to your technical skills as well.
  • Maintain Unused Skills: You know that old technology that you barely use anymore because all of your clients have moved on? A charity or non-profit may still be using it. When you volunteer to help with that piece, you keep yourself fresh in case it ever comes up again with clients.
  • Work on New Skills Too: The organization where you give time may also be using a tool you haven’t yet tried or one for which you need to build experience before you can sell it. This provides a win-win scenario for both of you!
  • Explore Something New: Perhaps you’ve been considering a career change or thinking of changing industries all together. Volunteering is a simple way to test the waters while helping others at the same time.

From helping the less fortunate to caring for animals, everybody can find an organization that speaks to them. As an added bonus to contributions you make in your community, you will improve your life, both personally and professionally. If you’re not volunteering yet, what are you waiting for?

Accounting Basics for the Independent Contractor (Video)

Independent contractors are essentially a small business with one employee – yourself. For that reason, you need to follow all of the same accounting principles as any other small business. The good news is: it also means that any accounting tips and tricks for “small businesses” can be applied to your independent contracting business.

Especially if you’re just starting out as a freelance IT professional in the gig economy, the accounting side of the business can be intimidating. To help ease the stress, check out this video from Patriot Software that runs through some basic accounting tips for small businesses.

If you’re still unsure about these tasks, we strongly recommend you engage a professional accountant. Avoiding tax complications and properly planning your finances will be well worth the money you pay.

Does Calling Yourself a ‘Freelancer’ Hold You Back?

This post by Susan Johnston Taylor first appeared on the Freshbooks Blog on September 28th, 2016

Does Calling Yourself a ‘Freelancer’ Hold You Back? One of the perks of freelancing is choosing your own title. So, what exactly should you call yourself? A freelancer, an entrepreneur, a small business-owner, something else?

In my experience, solopreneurs who choose not to self-identify as freelancers tend to fall into one of two main camps. The first camp chooses some other title to post on social media, print on their business cards and use in their elevator pitch (for instance, “independent web developer,” “creative director for hire” or “entrepreneurial journalist”).

Or they set up a business (for instance, “Sam Smith Media, LLC” or “The Red Pen Unlimited”) officially or unofficially that de-emphasizes their solo status and allows them to call themselves the owner, CEO or similar. In that case, maybe they plan on eventually scaling up to include others or they want to give the impression of being a larger company so they can attract bigger clients.

Here’s a look at the advantages and disadvantages of calling yourself a freelancer.

Advantages of the ‘Freelancer’ Title

Clarity

In certain circles, people will know immediately what you’re all about if you call yourself a freelance web designer or a freelance copywriter. They may not understand what you mean by a “web design ninja” or an “independent content marketing strategist.” That’s especially true of LinkedIn profiles. No client or employer searches LinkedIn for people with cutesy or creative titles like “copywriting maven” or “SEO guru,” so in that context, you’d want more a straightforward professional title that makes it clear what you do.

Camaraderie

Freelancers are a pretty rad tribe of free-thinking, creative people. Self-identifying as a freelancer means you’re part of that community and gives you the ability to tap into the collective wisdom of the tribe through online forums, in-person events and the like. Of course there are also forums and networking events for people who self-identify as solopreneurs or small business-owners, but freelancers tend to share some similarities that they may not share with the broader community of small business-owners who have brick and mortar locations or employees to manage.

Disadvantages of the ‘Freelancer’ Title

Lack of Respect

Alas, some clients just don’t respect freelancers. They may pay their freelancers late (or not at all) or email them at all hours of the day or night assuming the freelancer must have nothing better to do than wait at the client’s beck and call. Calling yourself something other than a freelancer could help establish yourself as a legitimate business entity deserving of greater respect.

Negative Associations

The term can have negative stereotypes for those who assume that a freelancer is someone who couldn’t hack it in the corporate world or who loafs around in pajamas watching daytime soap operas. For most freelancers that isn’t the case, but using a term other than freelancer could help bypass some of these misperceptions and position yourself as a bona fide professional.

Self-Perception

Aside from how others treat you, calling yourself a small business-owner or a solopreneur could also shape the way you think about your own work. If you view freelancing as a casual thing you do in between full-time jobs, you may not behave like a business or charge what you’re worth. But if you think of yourself as a business, then you’re more apt to get agreements in writing, send professional-looking invoices and take other steps that establish you as a business.

Possible Limitations

Some creative professionals grow from freelancing on their own to subcontracting work to others or even creating a virtual digital agency with multiple contractors or employees. If you see yourself as a digital agency of one, then that could create a smoother transition into a larger business in the future. Branding yourself as something other than a freelancer means you won’t have to rebrand when you decide to expand or change how you think about and describe your work. Of course, scaling up isn’t for everyone. Some freelancers are happy to remain a company of one.

Distancing Yourself from Your Work

Some solopreneurs choose to incorporate as a business to provide an extra layer of protection in case there’s a legal dispute around their work. Also, some freelancers define themselves by the success or failure of their work (an unhealthy, but all too common mindset). Using a business name other than your own name could also have the psychological benefit of reminding you that you are not interchangeable with your work.

In my case, I vary my word choice depending on the context. If I meet fellow freelancer, I’m apt to self-identify as a freelancer as well so that we can find common ground. If I’m hobnobbing with other solopreneurs, I might self-identify with that group. Ultimately, I think behaving like a business-owner is more important than what you call yourself.

About the Author: Freelance journalist Susan Johnston Taylor covers entrepreneurship, small business and lifestyle for publications including The Boston Globe, Wall Street Journal, Entrepreneur and FastCompany.com. Follow her on Twitter @UrbanMuseWriter.