Posted on Friday March 08, 2019

Income taxes and self-employed workers: 5 key questions

When tax season arrives, people who are self-employed face different issues from employees. Everyone wants to save on income taxes, but how? Here are 8 questions to ask when you are preparing an income tax return as a self-employed worker in New Brunswick.

1. Do I have to file a return if my income is low?
All workers in New Brunswick have to file an income tax return. Even if your self-employment income is less than the minimum required to pay income taxes, you must file a return every year.

Not filing an income tax return may mean you lose access to some programs, such as the New Brunswick harmonized sales tax credit (NBHSTC) or tax credits for tuition fees.

These are the income tax brackets for New Brunswick for the 2018 tax year:

• 9.68% on the first $41,675
• 14.82% from $41,675 to $83,351
• 16.52% from $83,351 to $135,510
• 17.84% from $135,510 to $154,382
• 20.3% over $154,382

Keep in mind that federal income taxes (at a rate based on your particular situation) must be paid in addition to provincial income taxes.

2. What exactly do I have to declare?
The tax status of self-employed workers is similar to that of small businesses. They have to declare all the income they earned as self-employed workers after subtracting the expenses that are eligible for their duties. Capital gains (investment income outside a TFSA or RRSP, gain on the sale of a property, etc.) must also be declared in the appropriate sections.

3. Why is it important to declare all my expenses?
By omission, from fear of exaggerating or simply because they are unaware, many self-employed people do not declare all their eligible expenses. For example, if you have a home office, you can deduct part of the expenses related to the setup and upkeep of that space, just like businesses deduct the rent, electricity and maintenance costs of their office space. If your house is 1,500 square feet and your office takes up 150 square feet, you can deduct 10% of your costs. Here are some other things that are tax deductible for self-employed workers:

• electricity
• insurance
• mortgage interest or rent payments
• setup costs (desk, table, chair, paint, light fixture, curtains, etc.)

You can also claim all your invoices from subcontractors and suppliers, as well as all invoices related to operations or sales representation:

• communications costs (Internet, landline or cell phone)
• work tools (computer, printer, cell phone, software licences, etc.)
• advertising costs (Facebook Ads, business cards, brochures, etc.)
• transportation costs (kilometrage, plane or train tickets, etc.)
• accommodations costs
• bills from restaurants, coffee shops, catering services, etc.

Useful applications for filing income taxes:

• Everlance specializes in calculating kilometrage and on-road purchases.
• ReceiptBank records your expenses, such as the payment of suppliers and subcontractors. This application can be linked directly to QuickBooks, Simply Accounting or other accounting software.

Don't forget: All undeclared expenses pointlessly increase your tax bill. If you have tax numbers, you can also claim back the goods and services taxes paid on your expenses, as all businesses can. This can be a considerable sum, especially if your business uses lots of supplies or subcontracting.

4. Do I have to use professional services to file my income taxes if I am self-employed
Calling on a professional can be justified if your financial situation is complex or if you are not comfortable filing your taxes on your own.

To determine whether you should hire a professional, ask yourself the following questions about the complexity of your situation:

• Do you have dependants?
• Do you have several types of income?
• Do you have several types of deductible or non-deductible expenses?
• Do you have access to a lot of programs and deductions?

Also ask whether you are comfortable completing the tax return:

• Can you do what an accountant does?
• Do you feel comfortable doing it? (And do you have the time?)

Most Canadians have their taxes done by a professional so they can benefit from all the available credits and deductions. Whether you choose to hire a professional or file your return yourself, we strongly recommend that you get all the information you can, so you can catch any possible errors and make the most of all the opportunities available to you. Even if you call on a professional, you are the one who is ultimately responsible for the information in your tax return.

If you are doing your taxes yourself, complete the New Brunswick Tax and Credits form.

5. What tax credits are available in New Brunswick?
New Brunswickers may be eligible for many different tax credits, some refundable and some not, offered by the federal and provincial governments. It's a long list, and your eligibility may be related to your age, family situation or area of business. To find out about tax rates and see a list of refundable and non-refundable tax credits offered to residents of New Brunswick, please go to the Government of New Brunswick website.

6. What are the administrative formalities and important dates?

• Do I have to pay instalments?
  In Canada, self-employed workers are subject to the same rules as businesses concerning income tax instalments, which may come as a surprise for workers who are misinformed. For information about income tax instalments, please go to the Canada Revenue Agency website.
  
  
• What is the deadline to file an income tax return for 2018?
  Self-employed workers have until June 15 to submit their income tax return. This year, June 15 is a Saturday, so they have until Monday, June 17, 2019. If you owe income taxes, however, the balance must be paid by April 30, 2019, which means you have to plan for your payment even if you have not yet filed your return. We recommend that you file your return by April 30, to avoid any penalties.
  
  
• What if I don't have enough cash to pay my balance in full?
  Many self-employed people do not have a sufficient cash flow to cover their expenses for several months. For income taxes, it's best to inform the CRA (Canada Revenue Agency) as soon as you realize you will be unable to pay your entire balance. That way you can establish a pay arrangement that allows you to spread your payments over time and avoid collection procedures. In some circumstances, the CRA may even grant relief from penalties or interest. Transparency is always the best solution.
  
  
• How long should I keep my documents after filing a return?
  Officially, the CRA can conduct an audit up to four years after a return is filed, but the retention period for justifying documents and supporting materials (bank statements, images of deposited cheques, invoices, etc.) is six years. If you are investigated for fraud, the CRA can go as far back as necessary, which may conflict with the prescribed document retention times.

In any case, we recommend that, as a self-employed worker, you should work with an accountant or tax specialist to make sure you get the advice you need about your situation and that you are claiming all the deductions you can.

People who are self-employed enjoy many significant tax benefits that are worth evaluating, but you must pay special attention to your documents, especially those related to deductible expenses. Good planning allows you to take full advantage of all the benefits of being self-employed.

Happy Tax Season!