Self-employed individuals in Canada are required to file a tax return each year, just like employees. The process of filing a tax return for a self-employed individual is slightly different, as self-employed individuals have to report their business income and expenses separately from their personal income and expenses.
When filing a tax return as a self-employed individual, you will need to complete a T2125 form, also known as the “Statement of Business or Professional Activities.” This form is used to report your business income and expenses, and it must be attached to your personal income tax return (T1).
On the T2125, you will need to report your business income, such as money earned from sales or services. You will also need to report any expenses that were incurred to earn this income, such as the cost of materials, rent, utilities, and other business-related expenses.
You will also need to report any capital assets that you purchased for your business, such as equipment or vehicles. Capital cost allowance (CCA) can be claimed on these assets which can reduce the business income.
It is important to keep accurate records of all income and expenses throughout the year, as you will need to provide detailed information when filing your tax return. It’s also recommended to consult with a tax professional as self-employed taxes can be complex, and a professional can help ensure that you are claiming all of the deductions and credits to which you are entitled.
Additionally, self-employed individuals are required to make quarterly instalment payments throughout the year, to ensure they have paid enough tax over the course of the year, so they don’t end up with a large bill when they file their taxes.