19
Dec
Whether you’re a sole proprietor of a business or a freelancer, there’s no denying that taxes need to be properly calculated. Knowing the difference between being a sole proprietor and working as a freelancer can help you make informed decisions about filing your taxes.
Difference Between Sole Proprietorship and Freelancing
When it comes to self-employment, understanding the difference between being a sole proprietor and working freelance is essential.
A sole proprietorship is an unincorporated business owned by one person who is responsible for all debts and assets associated with the business. This type of ownership is usually found in small businesses such as hair salons, retail stores, and landscaping companies. On the other hand, freelancing refers to individuals who provide services for hire without having to commit themselves to any particular employer on a long-term basis. Examples of common freelancers include writers, graphic designers, consultants, web developers, and photographers.
Taxes for Sole Proprietorships vs Freelance Work
The main difference between being a sole proprietor and working freelance is that only sole proprietors have to pay GST/HST. This means that if you’re running your own business as a sole proprietor, then you must register with the CRA as soon as your annual gross revenue exceeds $30,000 or more over four consecutive quarters.
Once registered for GST/HST purposes, you’re required to charge your clients this tax on any goods or services they purchase from you in addition to charging them any applicable provincial sales taxes. You may also be eligible to claim back GST/HST paid out on certain business expenses related to running your business such as advertising fees or office supplies purchased during the year.
For freelancers who do not qualify as “sole proprietorships” under Canadian law, there are still other taxes that must be taken into consideration when filing returns each year such as income tax or payroll deductions depending on what type of work you do (for example whether it’s an hourly rate job or project-based work). For example, freelancers must contribute to the CPP if their income exceeds $3,500 per year regardless of whether they are incorporated or not.
In addition, self-employed workers can choose not to pay into EI premiums unless they opt into the program for access to employment insurance benefits, which include maternity, parental, sickness, compassionate care, and family caregiver benefits. To opt into this, you must register with the CEIC, which is why it’s important to make sure you’re working with a bookkeeper who can provide you with the precise information you need to succeed!
Taking the first step to be your own boss and run your own business is an exciting one filled with tons of huge rewards – you just need to make sure you’re doing it right, and by partnering with the expert team at Keenans Accounting, you can be sure you’re supplied with all the knowledge to watch your business grow. Call us today to get the advice best tailored to you and your business at 705-526-7628.