Tax season is upon us. And while this time of year might cause a few headaches for some, if you’re self-employed or a freelance artist, just the word “taxes” might set you into a tailspin. “Can I claim that lunch meeting from back in August?” “What about that new monitor I purchased?” “Where did I put those receipts?” might be some of the questions going through your head. If you’re an expert record-keeper, filing your taxes can be a breeze. But even the most organized might have difficulty distinguishing between a personal expense and a business expense, or understanding exactly how to calculate taxes owed.
Keith Smith of the accounting firm Winsor Coombs will show participants how to tackle their taxes like a pro during his January 30th workshop “Income Tax for Freelance Artists” at St. John’s City Hall. Keith recently took some time to talk taxes, the importance of being organized and things to consider if you have a home office.
Business & Arts NL: What are some of the most important considerations that freelance artists need to take into account concerning tax season?
Keith Smith: One of the biggest issues facing self-employed individuals, including freelance artists, is proper record keeping. Proper record keeping is critical, not only for income tax purposes, but for other business needs such as possible bank financing and applications to government for grants. Specifically for income taxes, good record keeping helps ensure that all expenses are captured and thus less income taxes are due. Conversely, good record keeping reduces the chance of payments to the freelance artist being missed as revenue for services provided, thereby reducing one’s exposure to a review by the Canada Revenue Agency (“CRA”).
Business & Arts NL: Speaking of income, taxes etc. can you provide a few tips for freelancers on how to keep their financial matters organized?
KS: One of the biggest areas of concern for freelancers is the separation of business activities from personal activities. One way of achieving this separation is to establish a bank account for the business with all payments and receipts for the business going through the bank account. Setting up your freelance business in this matter helps to capture all the business transactions and provides documentation to the CRA in case of a review by them. If one’s level of activity does not warrant the establishment of a new bank account, then it becomes more critical that each day’s receipts and payments be recorded in some type of spreadsheet on a regular basis.
Business & Arts NL: Are there any items that freelancers tend to claim on their taxes, but shouldn’t? And conversely, are there any items that they should claim, but do not?
KS: As with most self-employed individuals, freelance artists tend to make the mistake of claiming expenses that are not a real business expense or is something that has a mix of business and personal use. For example, while it may be a justified business expense to buy lunch at a restaurant to discuss an upcoming venture, having this lunch at a high-end eating establishment vs. a more midstream establishment would not likely be justifiable. One area that appears to be underutilized by freelance artists is the claiming of expenses related to a home office. In most cases the artist does not have an exterior office thus in such cases CRA allows the artist to claim a portion of the home expenses as long as it’s reasonable in the circumstances. In general, if an artist used 10 per cent of their home for business then 10 per cent of home expenses may be justifiable as a tax deductible expense. For example, if 10 per cent of the home was being used and rent of $500 was being paid each month, $50 per month could be claimed by the artist.
Business & Arts NL: What common errors do freelancers tend to make during tax time?
KS: Interesting enough, common errors that I see the most are usually mathematical errors. Hence the need to use spreadsheet software to capture receipts and expenses.
Workshop: Income Tax for Freelance Artists
Date: Monday, January 30 from 1pm-4pm
Location: St. John’s City Hall, Foran-Greene Room
Price: $20 Business & Arts NL members/$30 General public
Advance registration is required.
For more on Keith’s workshop, click here.
Note: This session is preceded by Grant Writing for Individual Artists & Arts Groups with Katrina Rice of ArtsNL from 9am to 12pm in the same location. The Grant Writing workshop is free and advance registration is not required. For more information on this session, click here.