Filing taxes as an independent contractor can be frustrating when you have been used to working as an employee. We encounter many clients who are totally new to these arrangements and have no clue about the steps to get started. This blog will focus on First Time Independent Contractors and Consultants who were previously full-time employed but have switched over to either a sole-proprietorship or incorporation entity.
Here’s a quick 3-step overview to get you started in the right direction!
1. Discuss Incorporation BEFORE Incorporating:
You need to speak with a tax accountant in Brampton to determine if based on your expected net income it’s worth spending the money to get incorporated to minimize your taxes. You do not want to waste money on unnecessary legal and accounting fees.
If incorporation suits your situation, while getting your company incorporated, be sure to address the following important points to the incorporator:
- Have custom share classes and share clauses added to the articles of incorporation to maximize income splitting with your spouse and adult children.
- Whether you should incorporate a federal or provincial corporation based on your circumstances. You can learn more about this topic by clicking this link. http://www.birdi.ca/incorporating-company-ontario/
- Selected a Corporate Year End date.
When filing taxes as an independent contractor, you can either be incorporated or operate as a sole-proprietorship.
2. Setup the Basic Internal Controls:
Having the correct internal controls for your new company from the beginning is essential. This will make filing taxes as an independent contractor a lot easier and save you the headaches later on-come tax time! Consider the following key points:
- Open a separate company bank account
- Apply for a company credit to build credit
- Register for GST/HST with the CRA.
- Speak with your tax accountant about the Quick Method of HST.
- Use Bookkeeping software to prepare invoices and track expenses!
3. Be Sure to Tax-Plan:
Make sure you take the time in the beginning to actually speak with a tax accountant in Brampton to ensure you maximize your deductions to minimize your overall taxes, both corporate and personal. Filing taxes as an independent contractor requires you to efficiently tax-plan to get the full benefits. Some key items to ensure you cover with your tax accountant are:
- Should you take salary or dividends?
- Leasing a car vs. Buying a Company purchase a car?
- The tax free car allowance for business KMs traveled with personal vehicle.
- Work-in-home office expenses if you operate remotely.
- Health benefits
- Personal Service business (PSBs) tax rules
- Annual due dates and deadlines.
- The Year-end requirements!
In conclusion filing taxes as an independent contractor can save your thousands in taxes if you tax-plan and setup correctly for day one. Consult with one of our tax accountants today to start saving!
Author: Gurrai Birdi, CPA, CGA, MBA
Gurrai Birdi is a Chartered Professional Accountant (CPA, CGA, MBA) who has years of extensive experience in public practice working with highly satisfied individual and business clients to ensure there taxes are minimized and accounting needs are fulfilled.