As I was getting ready for tax season in February, I shared some stats and tips on keeping cool during these seemingly stressful months. I’ve found that if you’re organized and informed, doing your taxes can be a breeze!
When it comes to personal income taxes, people typically fit into two categories. Either you are a salaried employee or you’re a self-employed freelancer/entrepreneur. However, like myself, many of us are a hybrid of the two – that means you’ve got a full-time gig and earning income from your ‘passion project’.
When you’re a hybrid freelancer, what does this mean when it comes to filing your taxes and what may you need to be aware of?
With the help of TurboTax, I’ve put together this short guide for tax season as an aid to all you ‘hybrids’ out there!
Be Proactive All Year-round
When you are a salaried employee, your employer will take care of income tax deductions from your pay throughout the year. But as a freelancer, it’s important to be proactive throughout the year by managing the additional income that is being generated. That means, understanding how your additional income earned may impact your current income tax bracket and budgeting money aside for the additional taxes owed.
It doesn’t require a lot of sophistication to keep track of your freelance income throughout the year, but doing so will allow you to estimate (combined with your existing salary) your monthly total gross income and what the tax amount may be. For example, if your employer is already deducting 30% of your gross income, consider setting aside 30% of your monthly freelance income as well. Additionally, proactively keeping track of your freelance income levels will also provide indicators of when you may be required to apply for a GST/HST number (i.e. over $30,000 of gross income earned).
There are also proactive steps you can take to offset the additional income earned.
Firstly, by investing in RRSPs, you’re reducing your income level which means potentially cutting down your tax bill. Personally, I employ a two-way approach when it comes to RRSPs. I make regular contributions (weekly, as compound interest works out in favor with more deposits) and ahead of RRSPs deadlines, I also estimate via my tax software what additional lumpsum contribution I can make for further reductions.
Secondly, by managing and tracking the expenses you’ve incurred to operate your freelance business monthly, you won’t run the risk of scrambling for bills and receipts at tax time. If you are running your passion project from your home, you will be eligible to claim expenses for your utilities, internet /phone bills, mortgage interest/rent, and any associated repairs or maintenance. Trying to gather all this information when you may be budging up against deadlines can be quite daunting, so I encourage you to track these expenses monthly, to stay ahead!
Be Aware of Deadlines and Due Dates
Speaking of deadlines, I’ve made the mistake one year and missed the RRSP contribution due date. For some, missing this deadline can translate into thousands of dollars. Don’t let tax season overwhelm you and put off getting things done on time!
In Canada, the deadline for contributing to your Registered Retirement Savings Plan (RRSP) for the 2016 tax filing year is March 1, 2016 (I hope you already got this stuff in order!). And the 2016 personal income tax filing deadline is April 30, 2016, so if you haven’t gotten a head start on this yet, now is the time!
Selecting the Tax Software that Fits Your Needs
Now that you’ve gathered all the information you need to file your taxes, how do you go about selecting the best tax software package?
TurboTax offers a variety of tax software packages, from Free, Standard, Premium, to Home & Business. Each option is recommended for targeted profile but if you’re not quite sure, the website can guide you through a series of questions that can help you determine your needs and fit. Personally, I’ve used both the Free and Standard packages and I’ve had a great experience with it. However, the Home & Business option is now becoming seemingly my option of choice due to the added complexity of my blogging business and the associated expenses.
TurboTax is currently running a #MyTurboTaxMoment contest! Share your moments on Twitter, Facebook, and Instagram and 2 lucky winners will win a Grand Prize of $2000 each along with 10 other prizes of $100 and all winners will receive a FREE copy of TurboTax! Good luck!
Disclaimer: This post was written in partnership with TurboTax but all opinions are my own.