Recap: Tax Help for Small Businesses and Self-Employed Individuals (Part 1)

By Adrineh Der-Boghossian

Photo by Karolina Grabowska from Pexels.

Did you, like me, launch a freelance editorial business in 2020? Wondering what you need to file your taxes as a self-employed individual? Or perhaps you have an established freelance business but wonder if you’ve been overclaiming your business use-of-home expenses? An online presentation hosted by Editors Nova Scotia on January 22 and led by the Canada Revenue Agency (CRA) Liaison Officer Charbel Saab provided some much-needed answers to these and other questions.

Below is some of the information I found helpful as a new business owner.

Tax Forms for Small Businesses

When completing your T1 income tax return, report your self-employment income as either Business Income or Professional Income; either of these are fine for editorial professionals. The other forms you have to complete are a T2125 Statement of Business or Professional Activities and a GST/HST 34 Return (the latter only if you have a GST/HST account number).

Books and Records for Small Businesses

The CRA doesn’t actually specify which records should be kept: “Businesses are generally expected to keep any information related to the calculation or verification of income and deductions.” This includes invoices and receipts, cheques, bank statements, and even correspondence that supports your transactions. For items purchased at an online seller marketplace (Kijiji, for example), a screenshot of the ad showing the price or the discussion with the seller to show that a different price was paid is acceptable.

Receipts and other vouchers must include the name and address of both the buyer and the seller/supplier, while invoices should also include a description of services provided, transaction date, and invoice number, among other requirements. Participants were told that numbering invoices sequentially is important and that revenue is recorded as earned on the date of the invoice—not on the date the invoice is paid.

Something else I learned: You are required to keep seven years of books and records, which includes the current year (that is, you have to keep the records of the previous six years). In 2021, this means keeping records from and including 2015.

Revenues and Expenses for Small Businesses

You are required to report all revenue regardless of how you are paid—whether that’s cash, debit, credit, cryptocurrency—or even if you barter for your services.

For purchases and expenses, you can deduct them if they were incurred/made to earn business income, are supported by invoices, are paid or payable by the taxpayer/registrant, and are reasonable in the circumstances. A common error that small businesses make is forgetting to exclude the personal portion where applicable or doing so incorrectly.

Tools and Online Services for Small Businesses

Saab also shared with participants a helpful tool to determine how your business is doing compared to those of your peers: the Government of Canada’s benchmarking tool, Financial Performance Data. To use this tool, you’ll have to know the NAICS code for your profession (for editors, that’s 561410: Document Preparation Services.) During the live demonstration, we discovered that editors should expect to keep 81.6 percent of every dollar earned, which is quite a high profit margin compared to other industries.

The informational seminar covered a lot of ground in a speedy one-and-a-half hours. Though Saab concluded his presentation by taking questions from participants, I found I needed more time to absorb all the information and didn’t know what to ask first. Luckily, all who attended subsequently received a copy of the presentation slides and a very helpful information kit. For more information, small businesses can book a free one-on-one (virtual) appointment with a CRA liaison officer at canada.ca/cra-liaison-officer.

For a detailed list of common errors that small businesses make when filing their taxes, read Part 2 of the recap, which will be posted next week, on March 1.


Adrineh Der-Boghossian is a professional copy editor and proofreader offering services to publishers, small businesses, and non-profit organizations through her company More Than Words. She is an active member of both the Chartered Institute of Editing and Proofreading (CIEP) and Editors Canada, where she volunteers as the proofreader for The Editors’ Weekly.

This article was copy edited by Leslie Lapides, who can be found at wordcrisper.com.

2 thoughts on “Recap: Tax Help for Small Businesses and Self-Employed Individuals (Part 1)

  1. Hi Adrineh,

    Thank you for this wonderful article.

    There is a minor distinction that wasn’t addressed regarding the maintaining of records for seven years, probably because there aren’t many who would be affected. Because the possibility exists, that distinction should be mentioned.

    With respect to maintaining records for seven years, you correctly state that a 2015 return could be destroyed in 2021. However, the distinction would be in mentioning if the 2015 return was filed on time. When a return is filed late then the six year calculation starts with the year the return was filed, regardless of the year to which the return pertains. So if you are considering the same 2015 return, that for some reason wasn’t filed until September 2017, then it should be kept until September 2023.

    There are other reasons the retention date can be different. Full information on this can be found on the CRA website: https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/keeping-records/where-keep-your-records-long-request-permission-destroy-them-early.html#kp_yr_rcrds.

    Anna Cairns

    Like

  2. Hi Anna,

    Thank you for your very helpful and elucidating comment! To be honest, I didn’t know that the date of maintaining records depends on the year they were filed (and not the tax year itself) — this information wasn’t mentioned in the presentation, as far as I can recall. Thanks as well for the link to the CRA website. It’s always helpful to have more information so we can make better decisions.

    Thanks once again,
    Adrineh

    Like

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