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Tag Archives: taxes

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

Canada’s Proposed Tax Changes: Are you “up” on what’s coming?

Morley Surcon By Morley Surcon,
Vice-President, Western Canada at Eagle

Much has been said about the “Gig Economy” over the past couple of years. In today’s frenetic and “instant gratification” society, there are clear data suggesting that short-term contract work is growing in popularity for both workers and businesses who purchase their services. However, recently Canada’s Federal Government has been actively moving towards reforms in the tax laws meant to close “loop-holes” in the system to ensure everyone “pays their fair share”. The problem is that governments have a terrible track record — when it comes to making policy changes, there are often negative, unintended consequences.

The changes proposed will have an impact on independent contractors. There are three areas that the government wants to address:

  • Limiting the potential for income splitting between family members (also referred as “income sprinkling”)
  • Reducing the potential to earn “passive income” on monies that you decide to leave in your businesses vs. paying out to yourself in the form of salary or dividends
  • Stopping the conversion of income to capital gains

Are there people/small businesses that may take advantage in these areas? Most likely. However, the saying “tossing the baby out with the bath water” comes to mind. There are no shortages of commentary online about the potential impact of these changes. I’ve included links to many separate articles to legitimate news sites at the bottom of this blog in the event you would like to read more about this. But suffice it to say, there are likely to be significant consequences to you directly. Reasonable advice is offered in Armando Iannuzzi’s article on KRP’s blog entitled The good, the bad and the ugly of Ottawa’s proposed corporate tax changes where he answers the question: What should business owners do to prepare for these proposed tax changes? He suggests that there is no benefit to paying for legal or accounting work at this time as nothing is written in stone just yet. But you should keep “…these developments on your radar” says Iannuzzi, and ensure you have open lines of communication with accountants you trust.

Eagle isn’t a legal firm or accounting company, so we don’t provide specific advice to our contractors. We are watching this situation as it develops and are actively participating in industry organizations such as ACSESS and, as part of these groups, we are lobbying the government on the contracting community’s behalf. We are a bit surprised at how little the IT contractor community is saying about the proposed changes. Certainly, we are hearing from the medical profession, farmers and small business in general.

Are you following this as it develops? Do you have thoughts you’d like to share with our readership? I encourage you to leave your comments below!

Links to news websites that discuss the proposed changes:

5 Ways Independent Contractors Can Keep on Top of Expenses

Staying organized isn’t everybody’s forte. While some contractors will naturally go through life, somehow managing to keep everything perfectly arranged, others are more laid back and let some little items slide. Either is fine, depending on the situation, but when it comes to accounting, those extremely organized (sometimes annoying) people are going to have less stress.

There are different elements to accounting and all require some planning and processes. Expenses, for example, specifically need regular attention in order to ensure you’re keeping within your budget, but also to ease your life when it comes to closing your books and doing your taxes. Here are 5 tips that independent contractors, in technology or any other discipline, can use when managing their freelance business:

  1. Have a routine. Set a date to catch-up on all of your expenses and make sure you’re on track each week. This will stop you from falling behind.
  2. Know your predictable expenses. Understand what regularly happens and what you want to save. This will help with budgeting.
  3. Keep a separate bank account and/or credit card to easily separate personal and business expenses.
  4. Find a way to track expenses that works for you. Try any of these:
    • The old shoebox trick: Throw all of your receipts into it and you deal with them weekly or monthly
    • A spiral notebook: One step above the shoebox, here you tape the receipt to a page and add notes about what it was
    • Your cell phone: The more high tech version of the shoebox or notebook is to take a picture of every receipt, immediately after receiving it. There are apps you can download that will help you organize all of them too.
    • MS Excel: If you’re a spreadsheet geek, record everything in Excel. You can really get crazy staying organized and categorizing items with this.
    • Accounting software: This requires an investment, but the right accounting software makes a huge difference in staying organized.
  1. Get help. Specifically from an accountant, but also chat with other contractors in your field for ideas on how they’re organizing themselves.

Can you add any tips, based on your experience, that keep you organized in your technology consulting business? Please share them in the comments below!

How Will You Know When It’s Time to Incorporate?

This post first appeared on the CA4IT Insights blog on March 20, 2017

How Will You Know When It’s Time To IncorporateIn short, there’s no single milestone in a business’s maturity that dictates incorporation. It depends on a lot of variables, so it may require self-evaluations at multiple phases to determine when exactly the timing’s right for incorporating your small business.

When you’re conducting those evaluations, it’s important to create an accurate profile of your company and to give consideration to what it’ll look like as a corporation. There are distinct advantages and disadvantages to the title.

In the former column, you’ll have much greater flexibility with your taxes, including how you pay yourself—salary, dividends, bonus—or even if you pay yourself. A 15-percent preferred tax assessment on the first 500,000 of profit may prove to be all the incentive you need to leave your earnings in the company.

In the latter, incorporation isn’t inexpensive. And when you’re starting a business, expenses can already feel too numerous to track, let alone cover. Perhaps the only thing more precious than funding in those early days is time. Incorporation’s going to take a big bite out of that, too, because there’s more paperwork that’ll need to be filed—separate tax returns, notifications of share sales and directors’ actions.

If there is a brief answer to the question at the top, it’s this: Incorporating a business in Canada should not be entered into lightly. The more you understand, the more comfortable you’re likely to feel with your decision.

As one of the most respected accounting networks across Canada over the last quarter-century (and one of the few that’s ISO-registered), CA4IT specializes in business accounting services, including incorporation advising, for independent contractors, consultants and entrepreneurs. Click here for a free (no-obligation) consultation.

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!

Is Now the Time for Incorporation?

This article was originally published on the CA4IT Blog on July 15, 2016

If you’re like many independent IT contractors, you’ve probably been operating your small business as a sole proprietor. While starting a business, you’ve been more focused on building your client base than your tax strategy. However, depending on your situation, it may be time to consider incorporating your business so that you can take advantage of potential tax benefits.

Incorporating a business in Canada has both advantages and disadvantages specifically for independent contractors. Here’s a snapshot of how incorporation could benefit you:

  • Potential for lower tax rate. This is one of the biggest benefits of incorporation, but you need to talk to your accountant to see if it would work for you at this point. You need to be making enough to support your living expenses and more in order to really get these benefits. The general rule of thumb is that, if you are spending all of your profits to live on, incorporation isn’t right for you yet.
  • Limited liability. When you incorporate your business, you protect your personal assets. Your home or vehicle cannot be seized for your business’s debt.
  • You could be eligible for the small business tax deduction, which would reduce your tax burden.
  • Reputation boost.New clients may perceive an incorporated business as more established and therefore professionally trustworthy. It will help provide more legitimacy, and give new clients confidence in your abilities.
  • Some provinces allow you to split income with your spouse or children, also lowering your tax burden.

While your accountant can better discern if you would benefit from incorporation, you should know that it does have some drawbacks. First, it has substantial start-up costs that you may not be ready to incur. Also, incorporation will significantly increase the amount of tax preparation and paperwork you will need to perform.

About CA4IT

Our CA4IT member firms have all of the knowledge, skills, and experience to help you decide if and when incorporating a small business is right you.  Contact us for a consultation and we will help you learn more about the best tax planning strategies for your future goals.

Contracting and the Underground Economy

Morley Surcon By Morley Surcon,
Vice-President, Western Canada at Eagle

The Underground Economy Doesn’t Apply to Independent IT Contractors… Or does it??

The Underground Economy Doesn't Apply to Independent IT Contractors... Or does it??The topic of Canada’s underground economy seems to be raised again and again over the course of years and tends to come in waves — we’re seeing one now.  In the last week alone, I’ve read several newspaper articles and even heard it on my drive in on the News Talk radio station that I listen to.

What is the “underground economy”?  Sounds pretty sinister and, I suppose, parts of it might be, but it’s a lot more common than most people realize.  The CRA defines the underground economy as:

The underground economy is any activity that is unreported or under-reported for tax and GST/HST purposes. Often called “moonlighting” or “working under the table,” it can include bartering, failing to file tax returns, omitting an entire business activity from your tax return, “skimming” a portion of business income from what you report on your taxes, and not reporting a portion of employment income like tips and gratuities.

Generally, any income you earn is taxable and you have to report it on your tax return. If you don’t file your tax return or register your business for GST/HST when you’re supposed to, or you don’t report all of your income, you are participating in the underground economy.

So, by this definition, it is the guy down the street that does landscaping on the side; it’s the waiter who pockets your tip without claiming it as income; it’s the small business that accepts cash without putting it through the till.  Various newspaper articles estimate Canada’s underground economy to be worth between $42 Billion and $46 Billion — in aggregate, not a small amount.  That’s a lot of tax that is not being collected and everyone from the CRA to Chartered Accountants are looking at ways to curb these practices.  I’ve seen ideas ranging from legislating restaurants to track and report tip money on T-4’s to instituting a reward program for leads that result in $10,000 or more in taxes collected. (This latter already exists. CRA’s program is called the “Informant Leads Program” and, apparently, some of the most common “sources” of leads come from ex-business partners and divorced spouses).

As the economy is suffering and government spending is being spread very thin, this missing tax revenue is being highly coveted by government. But this doesn’t impact professional and/or technology contractors, does it?  After all, most are hired via a well-defined contract and have clear paper trails including time sheets, invoices and remittances.  The answer to that question is yes.  Well, maybe.  Certainly the paper trail will help in the case of an audit but by the time there’s an audit, the pain is already being felt.

Independent contractors (IT, Finance/Accounting, Engineering, etc.) should have concerns that the government may take a broad-brush approach to contractors/temporary labour in general; lumping them all together without full consideration for their differences.  This is one reason that Eagle belongs to (and has taken leadership in) such industry organizations as ACSESS and the NACCB, which are staffing industry associations who are actively lobbying the Canadian and Provincial governments on behalf of the industry and the contractors that are a part of it.

If you wish to learn more about the underground economy in Canada, I’ve attached links to some recent new articles below.  Let me know your thoughts on this issue by leaving a comment below!

The Tax Implications of Doing Business in the U.S.

This post first appeared on the CA4IT Blog, December 7th, 2015

Tax-Saving Opportunities for Independent Contractors

The Tax Implications of Doing Business in the U.S.Because data flows freely across international borders, many IT professionals have developed an international clientele. While doing business internationally can help Canadian companies to grow, smart business owners are keeping an eye on the tax implications of doing business in the U.S. The Canadian Business Journal reports that while most Canadian companies are on top of the federal tax laws that apply to their U.S. business activity, some are unaware of the state and local taxes that can significantly cut into their profits.

According to CFO Magazine, a number of states are becoming aggressive about collecting additional income tax revenues from corporations by asserting economic nexus ­­– a situation in which a business has a sufficient connection with a state to subject it to taxes imposed by that state. A CFO survey found that California and New York are the states that are most aggressively leveraging economic nexus to generate tax revenues, followed by New Jersey, Michigan, and Massachusetts. A number of other states are also actively seeking to collect tax revenue from business from other states and other countries.

Complicating the situation is that each state has its own tax code, which makes for a wide range of state tax bases and rates. And it’s not just states that are looking to maximize their revenues at the expense of non-local companies. Many cities and municipalities have their own rules covering income taxes, gross receipts, and sales taxes.

Income tax accountants recommend that businesses research state and local tax laws before establishing a nexus in an area. Understanding your obligations before you start doing business across the border gives you the best opportunity to reduce your tax liability. If you’re already doing business in the U.S. and haven’t paid state taxes, The Canadian Business Journal recommends that you evaluate the benefits of entering into a voluntary disclosure agreement with the state. A voluntary disclosure could result in a reduction in multi-year back tax liabilities and might reduce the penalties and interest you may owe. A voluntary disclosure could also mitigate potential criminal penalties arising from a failure to file taxes in the U.S. Be sure to consult a tax attorney before making any disclosures to a government agency outside Canada.

Tax liability is a complicated area. If you’re interested in expanding your business into the U.S., or you have already established an American clientele, it would be to your benefit to consult an accounting and bookkeeping service or more ideally a professional accounting firm like CA4IT that specializes in helping IT consulting professionals. Give our experienced CPAs a call today at 800-465-7532 or contact us by email.

9 Ways to Prepare for Freelancing in 2016

This article by Kate Rodriguez was originally posted on Social-Hire.com January 1, 2016

9 Ways to Prepare for Freelancing in 2016You’ve seen it, right? The impressive prediction that by 2020, over 40 percent of American workers will be freelancers (AKA “contingent workers”)? That figure hovered at just 10 percent in 2014. The fast-growing trend of self-employment has two sides and two sources. On the one side, professionals — particularly millennials and Gen Y’ers — want more control over their work lives, including the ability to set their own schedules, income potential and tasks. On the other side, employers want the flexibility to adjust their workforce levels according to need, and they want to employ the most talented people for less money. When experienced professionals freelance, it’s a win for both parties.

If you have been thinking about becoming a free agent, either as a full-time endeavor or a part-time side gig, you’ll find success faster if you know what to expect. In addition to making the obvious decision about what services you’re going to offer as a freelancer, you’ll want to prepare in these nine important areas:

  1. Be Ready to Market Yourself

Unless you can line up and keep a steady flow of clients via your connections alone, you’ll need to spend a considerable amount of time marketing your freelance services. Many self-employed persons spend up to a third of their work time on marketing, and not just at the beginning. It’s a necessary part of running a business, even if that business is just you. You must learn to like promoting yourself!

As a starting point, set up a website showcasing your expertise, what you offer and to whom, client references and, depending on your field, a portfolio. Create business cards and company brochures, as appropriate, for your line of work and target client audience. And don’t forget the awesome power of networking as a marketing tool. Whether it’s formal networking (e.g, in a professional association or a LinkedIn group) or the informal variety (e.g. sharing updates of your freelance activities with family, friends and neighbors), you should build in time for this important strategy.

  1. Update Your Cover Letter and Resume

Even if you intend to leave the 9-to-5, fixed employment world altogether, you’ll likely still need to go through the traditional process to apply for freelance gigs. Most companies will request a cover letter and resume, and will want to do an interview or two. Remember that in many cases, organizations are looking for a contingent employee with whom they can establish a long-term relationship. They’ll want to make sure you are the right fit, both in terms of your skills and your reliability. Prepare to follow the usual rules of professionalism when applying and interviewing with potential customers.

  1. Get Up To Speed on Taxes and Legal Matters

Know what a Form 1099-Misc is? You’ll need to if you want to be a freelancer.  Though it’s not terribly complicated, you’ll have to learn the ins-and-outs of paying taxes as a self-employed business owner. You must also understand the legal requirements of setting up a business, including licensing. Lastly, you should fully understand contract documents, like non-disclosure agreements (NDAs), and client contracts, which protect you and the customer from misunderstandings and legal woes.

  1. Be Creative about Finding Your First Client

Many freelancers need to secure their first client to prove to themselves – and future clients — that they’re capable of succeeding in this new career. Yet the first client is often the hardest one to score. Be prepared to work at this, but also be creative. Maybe the company you currently work for could be your first client, if you make them an attractive offer, i.e., your expertise working on a specific project at an overall lower cost to them. Offer to give a speech or write an article that demonstrates your expertise – and don’t forget to mention you’re for hire. Approach some prospective clients and offer a free evaluation, or mail postcards to them containing your sales pitch. Your first customer does not have to be a dream client that offers the most interesting work at top rates. The goal is to get started with one project. You’ll learn from it and, ideally, obtain a reference, which will help you secure the next client and beyond. With time and experience, you can trade up to bigger clients and better pay.

  1. Look Locally, But Don’t Forget You Are Available Everywhere

It will probably be easier to find clients locally for your freelance work since you’ll be relying on your network of personal and professional contacts. Contingent on what type of services you offer, however, you could potentially find clients anywhere. A marketing consultant or a web designer, for instance, could just as easily be working for a business in Australia as for one in their hometown. As the global freelancing talent pool grows and becomes more attractive to businesses of all shapes and sizes, these same companies are becoming more comfortable hiring remote workers and communicating with them virtually. So, focus your marketing efforts broadly – you never know where the next client might be sitting.

  1. Get Familiar with Freelancer Platforms in Your Niche

Once you determine the services you’d offer as a freelancer, you should familiarize yourself with any online platforms that bring together free agents and clients in your industry area. Toptal, for example, focuses on software developers, StudioD on content writers, and Guru on all manner of consultants. A note of caution: some platforms (especially those with bidding models) effectively enable a race to the bottom, where clients try to bid out work for below-decent rates. Nevertheless, platforms can be a good way to land your startup clients and to provide you with a look at what type of projects are out there as well as client expectations.

  1. Understand Pricing and Your Worth

Setting rates as a freelancer can be tricky. When you’re new at the game and don’t yet have much to show, you’ll want to avoid setting your rates too high. At the same time, you don’t want to fall into the trap of offering lower-than-average rates to capture clients. The simplest way to set your rates is to base them on the average hourly pay you receive now in your job as a fixed employee, assuming you are planning to freelance in the same field. Another, albeit rough, method to do this is by dividing your desired weekly freelance income by the number of hours you plan to work each week. For realistic ideas of what others charge clients as startup freelancers, find a discussion thread – or start one yourself – on Reddit, Quora, or an industry-specific LinkedIn group.

  1. Connect with Other Freelancers in Your Niche

Along with discovering what other freelancers in your industry are charging their customers, you’ll speed up your learning curve significantly if you connect with self-employed people doing what you plan to do. Spend some time identifying online communities or offline groups where freelancers gather to share leads, productivity tips, articles, and “how I got started” stories, and be prepared to contribute regularly. Use Meetup.com, for instance, to discover groups of like-minded freelancers in your area. You can even start your own Meetup group if you don’t find one that fits.

  1. Focus on Client Relationships, Not Just on Projects

To avoid the “feast or famine” problem of freelancing, you’ll want to accumulate a handful of clients for whom you do regular work. This ensures a reliable monthly income and allows you, over time, to specialize deeply in an industry or functional area. The more of a niche expert you become, the more valuable and sought-after your services will be. Prepare to approach each project with the goal of building a relationship with the client that extends beyond the work at hand. Take the time up front to understand the client’s needs fully and deliver the best product you can. Follow up to make sure the deliverables have met their expectations, and thank them for working with you. Once you’ve established a rapport in this way, you can make suggestions for future projects that could enhance the client’s business. This is not just about your earning more money. It’s about becoming a business’s trusted advisor to your mutual benefit.

Although there’s plenty of buzz about the benefits of freelancing, it will not work for everyone at every stage in their personal and professional life. Look carefully at the costs and benefits of going solo before you leap. As a freelancer, you’re becoming a branded business and should treat it as such: plan carefully, consider every risk factor, prepare for ups and downs — and more likely than not, you’ll end up a winner.

Tax-Saving Opportunities for Independent Contractors

This article was originally posted on the CA4IT Blog on December 4th, 2015

TaxAs an independent IT consultant, you are intimately familiar with how much it costs to operate your business and often, it seems like the CRA isn’t helping to keep your costs manageable. Since the CRA won’t be going away anytime soon, keep the following tax planning strategies in mind to ensure your tax bill is as low as possible next year. While all of these tips are easy enough to do by yourself, we recommend hiring an accountant for IT consulting professionals to make sure that you get every tax break your business is entitled to each year.

According to the CRA, you can deduct any reasonable current expense you paid or will have to pay to earn business income. There are a number of tax deductible expenses that independent contractors can write off, including:

  • Your vehicle – You can write off, at least partially, your costs for fuel, parking, and regular maintenance like oil changes, any necessary repairs, highway tolls and insurance. The amount you can write off depends on how much you use your car for work. If you use your car 75 percent of the time for work-related trips, then you can write off 75 percent of these expenses. Be sure to keep track of work related travel so you can accurately take advantage of everything that you’re legally entitled to deduct.
  • Travel – You can legitimately deduct the cost of hotel accommodation and public transportation fares when you travel for business, and 50 percent of what you spend on food and entertainment.
  • Supplies – You can deduct the cost of items your business uses indirectly to provide goods or services (for example, drugs and medication used in a veterinary operation, or cleaning supplies used by a plumber).
  • Professional services – The CRA lets you deduct accounting and legal fees you incur to get advice and help with keeping your records. You can also deduct fees you incur for preparing and filing your income tax and GST/HST returns.
  • Some computer and software expenses – If you lease computers, cell phones, fax machines and similar equipment, you can deduct the percentage of the lease costs that reasonably relates to earning your business income.

These are just a few of the ways you can save money and reduce your tax liability as an independent IT contractor.

For more information about ways to save money as a small business owner, give one of our experienced CPAs a call today at 800-465-7532 or contact us online.