We receive all kinds of questions from our readers. A couple that keeps showing up is what we do when it comes to filing taxes. While we aren’t going to give you a step by step of what we do, because everyone works differently, we thought we would check in with Gerry Vittoratos, tax expert at UFile, to answer some questions we had about being a member of the media, blogger, or influencer, and offer up some great tips we can all use to make this somewhat painful time a little bit easier.
Is income received considered business income?
Yes, the income you receive as a blogger or influencer is considered business income by the Canada Revenue Agency (CRA). Since you don’t receive a weekly or bi-weekly paycheck from an employer, and no one sets a schedule for you (nice!) or gives you orders (even better!) you are a business. Even though your sources of income differ from those of a traditional business, what you earn is still gross business income.
Are there any advantages of filing as an influencer or blogger?
Tax-wise, this gives you two advantages:
You don’t have to pay any tax on this income until April 30th of the following year when you file your tax return.
You can deduct expenses from your gross business income to lower your tax bill.
Should free products be reported as an income?
Yes. If you are given a product to promote in your blog or through your social media activities, the value of the gift is considered a payment for services rendered, and as such, it has to be added to your gross business income.
What are some tips on deducting home-based expenses based on a specific CRA formula?
Considering that this type of business is usually home-based, you can deduct expenses for the business use of a workspace in your home. The key word here is “workspace.” You are allowed to deduct expenses incurred for your home, but only for the portion that serves as your workspace. This means that you must prorate your expenses based on the area that the workspace represents vis-à-vis the total area of your home (workspace divided by total space of home). In addition, your workspace must be used primarily to earn your business income.
The types of home-based expenses you can deduct include part of maintenance costs such as heating, home insurance, electricity, and cleaning materials. You can also deduct part of your property taxes, mortgage interest, and depreciation, or rent if you rent your home. Expenses such as your cell phone data and home internet charges must also be prorated per the formula mentioned above. If you’re using your car for business purposes, you can deduct expenses such as maintenance, repairs, fuel, depreciation, leasing fees, insurance, licence and registration. However, you must prorate these expenses based on the business use of your car. For example, if 30% of the mileage you put on your car for the year is related to your business, you can deduct 30% of these expenses off your gross business income.
Is there a trick to keep my tax bill low when I file my return?
It’s certainly possible. Unlike employees who prepay their income tax for the year through payroll tax, self-employed individuals only pay tax on their business income when they file their tax return. If this is your case, when your business really takes off, the government will likely set you up with an instalment schedule to prepay your taxes in quarterly payments. This way, you won’t get the shock of a lifetime when you file your tax return.
Now that we have addressed that, let’s move on to some general tip that is going to help you this year, and, many more to come.
Tip 1: Keep calm – and collected.
If you’re feeling overwhelmed by deadline dread, don’t fret; most tax returns are actually simple and straightforward to produce. While most Canadians don’t have a lot of information to input, taking the time to compile tax slips, receipts, and other paperwork, is key. Once these documents are in order, you’ll have everything you need for a fast file.
Tip 2: Do it all in one go.
It is recommended that you produce your tax return in one sitting rather than over several days. Producing your tax return piecemeal can lead to omissions or mistakes in your file. You may forget information or miss out on valuable credits. Your best bet? Get your paperwork organized first. Then, load up your CRA recommended software and get it done.
Tip 3: Use a 5-step cheat sheet.
Following these five steps can help set you up for tax-season success:
Gather your documents.
Collect all the relevant documents you need for your tax return. This includes your T4 or other tax slips, as well as eligible receipts such as charitable donations and medical expenses.
Set some time aside.
Rushing won’t save you any time in the long run – in fact, it could end up costing you time and money if your filing fumbles. Make a point to intentionally find time in your schedule to load up your CRA approved software and get your taxes completed.
Do it digitally.
The right CRA income tax software is a must. It’s not only far more user-friendly than filling in paper forms, but software connect directly with the CRA’s NETFILE system, making paperless filing a breeze.
Have the CRA guide handy.
A copy of the CRA’s general income tax guide should be on hand in order to make sure you have correctly produced your tax return. Since you’re filing provincially as well as federally, having a copy of the applicable provincial tax guide is a good idea, too.
Refer to last year’s taxes.
As you work on your file, keep a copy of the previous year’s tax return handy, and compare your results when your return is ready. Reviewing old returns can help you keep track of your information year-to-year, and ensure that you have not forgotten to enter anything.
Tip 4: Start thinking about next year today.
Are you rushing this year’s return? Don’t make the same mistake twice. Take a moment today to create a folder for any documents related to your tax return – and make a point of updating it throughout the year. You usually receive your income slips at the beginning of March; however, documents for eligible expenses like charitable donations and medical receipts are typically given to you at the time of the transaction. Having a central tax folder will make it easy to keep track of all of the paperwork you need. You can then sort and filter this folder once you start producing your tax return.
Now take a deep breath, find a comfy seat, and take some time to get your taxes done right.