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Allison Nichol Longtin
- I calculate my earnings — and how much to set aside in a savings account — at the end of every month.
- I'm careful to track my business expenses and don't shy away from spending money on valuable things.
- I keep extensive records across several Google Sheets documents using templates from my accountant.
It's almost that time of year again: tax time! As a freelance business owner providing a variety of services as a writer and dance teacher, I need to be on top of my bookkeeping game so that I'm always ready for tax season.
Working with my financial advisor and accountant helped me create a structure to make tax season a breeze. Here's how I do it.
1. Know how much you owe
As a freelancer and small business owner in Canada making more than $30,000 a year, there are two kinds of taxes I need to pay: income tax and HST (Harmonized Sales Tax). The latter is an amount that gets added onto each of my invoices and is paid by the client. This money does not belong to me. I repeat: This money does not belong to me.
The structure I established with my financial advisor, Liz Schieck at The New School of Finance, includes two savings accounts earmarked for taxes (income taxes and HST). At the end of each month, I use my nifty bookkeeping trackers to calculate my earnings for the month and determine how much money needs to go to my tax-related accounts. For my income tax, I use a better-safe-than-sorry percentage so that I'm not caught out when the government comes to collect. Right now, that sweet spot is 29% of my total earnings before tax.
This percentage is intentionally padded and means that I'll likely have a little money left over after paying my taxes. The HST amount is easier to calculate, as the entire amount belongs to the government. Once I've done the sums, I then shuttle the funds into the relevant accounts and keep a record of the transfers.
2. Be smart about business expenses
One of my biggest takeaways from the 2021 tax season was that eligible business expenses help grow your business and shrink your tax bill. I tend to err on the side of frugality, but when my accountant reviewed my meager business expenses last year, he offered me an important piece of advice: Investing in the goods and services that will help you do your work better and reach more clients is good business.
In 2022, I sprang for the professional Zoom account, I engaged in professional development, and I bought a ballet barre for my home studio.
3. Make a plan and work the plan
I have a textbook type A personality, and I put this to good use when it comes to my bookkeeping. I keep clear records, have helpful tools in place, and I do as much of the leg work as possible before sending my documents to my accountant. Essentially, I make his job easy. His words, not mine.
For my bookkeeping, I rely on two digital trackers. One is for my invoices and business expenses and the other is for my personal expenses, bills, and contributions to savings. Both are on Google Sheets based on templates from my financial advisor.
In the former, I keep track of my invoices, breaking out taxes and including file paths to the digital invoices for easy access when preparing for tax time. In my personal expense tracker, I cross-reference my bank accounts and credit cards with my bills and auto-deposits to savings accounts and investments.
Keeping clear records and staying organized means that everything is where I need it come tax time. By mid-February, I start building the digital package for my accountant (and yes, I have a Google Sheet for that too!) I also send him an email to let him know when to expect my file for his tax preparation next steps. By mid-March, usually the weekend before my birthday (happy birthday to me?!) I send my accountant a digital package, complete with calculations. Last year, I paid my taxes in full before the filing deadline. And then I paid my accountant. All before April 1, because I'm no April fool. Mic drop.
The professional-approved tools and structures I've put into place help take the stress out of tax time. And my low tolerance for missing a deadline means that I start early and file early.