If you’re new to the world of self-employment, preparing your first tax return may seem like a challenge. Fortunately, Abdullah CPA has complied this Self Employed Tax Guide Canada.

Relevant CRA forms; Self Employed Tax Guide Canada

Self-employed business income is reported on the form T2125, Statement of Business or Professional Activities.

Business income refers to money earned from various activities like a profession, trade, manufacturing, or any other endeavor carried out with the intention to make a profit. It involves reporting income from clients using Form T4A.

On the other hand, employment income comprises wages, salaries received from employers, and self-employment income reported on Form T4A. Individuals who work for employers receive a T4 slip at tax time, while self-employed individuals need to fill out Form T2125 to calculate gross income and deduct allowable expenses to lower their taxable income.

Setting aside between 25% and 30% of income is a general rule for paying taxes, which includes CPP, federal and provincial income taxes, and GST/HST if registered.

Self-employed Canadians must also contribute to the Canada Pension Plan (CPP) based on their net self-employment income and pensionable employment income. They need to pay 10.5% of their income, up to a maximum of $7,508.90 in 2023.

To reduce the tax burden, it’s essential for self-employed individuals to claim all business-related expenses, such as advertising, vehicle expenses, office supplies, inventory, and business-use-of-home expenses, among others, on their T2125 form. You can use the Free Bookkeeping Template to track them.

For filing taxes online, new self-employed individuals can find resources and assistance to navigate the process effectively.

Abdullah CPA can help you if you need help in Tax Filling.