Self-employed workers need to keep good books

The days of walking into a great corporate job right out of high school or university and staying there until you retired with a comfortable pension are over, if they ever really existed for most people.

All kinds of Canadians today are using their own skills and energy to earn a living on their own.

Canada Revenue Agency classifies these people as “self-employed.”

The number of people who make a living without technically having a job or a business is well over a million and it has been climbing steadily since 2015.

Some use their self-generated income to survive on totally, while others apply it to other income from part-time jobs that they hold at the same time. They are just trying to survive, and it is the nature of the times we live in for many people.

There was a time when revenue gained from these little jobs on the side could be hidden from the tax man. But our cashless society means just about everything can be traced now, and Canada Revenue Agency has become increasingly aggressive about finding a person’s undeclared income.

We talk to people very year who willingly pay taxes on earnings they had in their full-time job, but think the money they make on their own driving for Uber or renting out a spare room on Airbnb is all theirs to keep. Some build apartments in their basements for full-time tenants to help pay their mortgage, and neglect to declare this income.

Others are selling their jewelry or homemade soaps or breads at markets or out of their own homes. Some are cutting down trees or mowing lawns or cleaning homes or office buildings, or making clothing repairs.

Many of these people operate under the impression that as long as they make less than $30,000 a year (the cut-off point for collecting Goods and Services Taxes), this little bit of additional income is tax exempt.

The reality is that all income collected is taxable. If you get caught with undeclared income, you can face fines or even criminal charges. And you will have to pay the back taxes on what you did not declare.

Failure to declare your income may also do a disservice to you, because the same laws that insist you declare your income allow for you to declare expenses associated with creating this extra income.

If you use your car to get from job to job, for example, you can claim a portion of your car payments, gas, insurance, fuel, and repairs. If you earn your money working out of a home office, you can claim a portion of home maintenance, utilities and even property taxes.

You should also be aware that sometimes you do all the extra work and declare, only to find at the end of the year that you did it all for nothing. The extra money you earned was just enough to put you in a higher tax bracket and you had to pay back most of what you made.

How do you know how to do it right?

You can read about what you can claim and how it all works on the Canada Revenue Agency site. There is some excellent information available here on their website: https://www.canada.ca/en/revenue-agency/services/tax/businesses/small-businesses-self-employed-income.html

If it doesn’t cover your unique circumstances, contact a firm that offers consulting assistance for the self-employed and small business owners.

At Piligrim Accounting, for example, our team of university and college-educated accountants and bookkeepers can help you set up your system right from the start.

We provide services in five languages: English, Russian, Ukrainian, Bulgarian and Hebrew.

Whether you are starting just a one-person business or dipping your toe into the self-employment world, you need the advice of a professional accountant to make sure that you do it right and claim all of the deductions you are allowed.

The consultant can also let you know if your projected additional income will place you in an added tax bracket.

Certified professional bookkeeper and certified tax specialist Elena Ivanova is managing director of Piligrim Accounting Inc., a national accounting and tax preparation service based in Richmond Hill, Ont. You can reach her at elena@piligrim-accounting.com.

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