What you need to know about being self-employed
March 24 2017
What you'll learn
- Are you cut out for being self-employed?
- The pros and cons of being your own boss.
- The financial and taxation specifics.
Abandoning the comfort of a stable salary and benefits to set out on your own, requires a good deal of guts and optimism. Much like going skydiving, being brave and daring isn’t enough; you need to also be prepared and know exactly what to expect.
If you’re considering joining the other 560,000 self-employed Quebecers out there, here’s what you should know.
Being your own boss : questions you need to ask yourself
Can I live without my benefits? Sure, you can take a vacation and call in sick whenever you want, but you won’t get paid.
Does your group insurance cover a high number of expenses? You will need to account for these costs in your budget.
Do you have the necessary discipline to save for retirement if you no longer have a pension plan? You will need to make putting aside money a habit early on.
Who will your clients and market be? Do you have a good risk tolerance? Relying on a single big client can be risky. On the other hand, serving a multitude of clients requires certain sales and customer service skills.
Sole proprietorship or Business Corporation
You can register as a company, but sole proprietorship usually does the trick for most situations. It might not be a good idea to incorporate from the get go, as it adds a level of complexity and increases costs. After all, the simplicity of self-employment is one of its greatest assets.
If revenue from your sole proprietorship doesn’t exceed $30,000 annually, you don’t have to get tax numbers. This means the invoices you give clients aren’t taxed, which saves you from having to fill out GST and QST returns.
Independent contractors, in the vast majority of cases, also aren’t required to register with the Business Registrar.
If, after time, business is going well and the situation calls for it, you can easily go from a sole proprietorship to a business corporation. This can reduce the personal risks associated with self-employment, and minimizes taxes on large incomes. To transfer goods to a business corporation, you must perform a tax rollover.
Obviously, self-employment is often about much more than just money. Who hasn’t dreamed of being their own boss and making their own schedule? Thankfully, there are also tax incentives for setting out on your own.
Like a normal business, you can lower your taxes by subtracting your expenses from your revenue. For example, if you’re using part of your apartment as an office, you can subtract a portion of your rent. Same goes for your transportation fees and supply purchases. Big expenses such as equipment or a car are amortized.
Make sure to save all your bills and, if possible, keep track of the amounts in a spreadsheet or accounting software. By doing some of your own accounting, you can avoid bookkeeping fees. That being said, an accountant’s professional services (which are a tax-deductible expense!) will help you gain a clear perspective and take advantage of the tax credits you are entitled to.
Getting financing can be harder for self-employed workers, especially if they’ve only recently acquired that status. To find out more, read “Self-employed? Avoid the hassles when getting a mortgage”.
- Becoming your own boss brings about a great deal of freedom, but requires discipline, sound fiscal management, and a tolerance for risk.
- Unless you’re earning high revenues, you’re often better off choosing a sole proprietorship.
- Expert advice can help you understand the tax issues.