Freelancers: When Do You Need to Register for Taxes?
<p><em>Many questions seem frequent in the world of freelancing and entrepreneurship. How can I find my first clients? What should be my rate? What can I do if my client does not pay me? And then, questions about taxes. Is it mandatory to register for taxes when we become a freelancer? If so, when and how? Let’s look closely at the tax question when you are a freelancer or a self-employed worker.</em></p> <p></p> <h3><strong>What taxes are we talking about exactly?</strong></h3> <p>If you are a freelancer or a self-employed person who lives in Quebec, please note that after a certain amount of revenue, you will have to charge the GST (5%) and the QST (9.975%) to your clients. It is not you who will have to pay these taxes, although you should keep in mind that you will have to pay income taxes and social contributions on your revenues with installment payments.</p> <h3><strong>When do you need to register for taxes?</strong></h3> <p>Therefore, when do you need to register for taxes when you become a freelancer or a self-employed worker? Is it mandatory to do it when you launch your business? The answer is no. It is imperative to register for taxes when your business revenues exceed $30 000 in a given calendar quarter or the four preceding calendar quarters. Consequently, if your business has not reached the amount of $30 000 yet, it is not necessary to register for the taxes because government authorities consider you a small supplier. </p> <p>It is also possible to <a href="https://www.revenuquebec.ca/en/businesses/consumption-taxes/gsthst-and-qst/reporting-qst-and-gsthst/" target="_blank">report QST and GST online</a>. You can decide whether to do a monthly, quarterly, or annual report. </p> <h3><strong>Why should you consider registering for taxes as soon as possible?</strong></h3> <p>Many freelancers and self-employed workers decide to register for taxes before they reach the amount of $30 000. Why? When you create your business, registering for taxes has many significant advantages. </p> <ul> <li> <p><strong>It can be less stressful</strong><br /> <br /> When are you going to reach the $30 000 limit? Since it is likely impossible to predict the future with certainty, the fact to register for taxes before reaching this amount can relieve some stress, especially if your business is growing quickly.<br /> <br /> Let’s take this situation as an example: let’s say that you just noticed that you have reached $32 000 in business revenues this year. Since you have reached the limit, you need to pay the taxes on the surplus amount. You can decide to pay the missing taxes yourself or contact your clients to tell them you forgot to charge them the taxes on your latest invoices. We can say that it is likely a situation you would like to avoid.<br /> </p> </li> <li> <p><strong>It displays your business credibility</strong><br /> Another significant advantage of registering for taxes as soon as possible is that it can increase your new business credibility. Indeed, when a business receives an invoice without taxes, it either means that you have not yet reached $30 000 in revenues or that you are working underground. <br /> <br /> Of course, you can always explain that you just have started your business; however, by registering for taxes, there will be no questions about your professionalism. No one needs to know what your business revenues are.</p> </li> </ul> <p></p> <ul> <li> <p><strong>You will not have to tell your clients you now need to charge taxes</strong><br /> <br /> If you decide to charge taxes as soon as you become a freelancer or a self-employed person, you will not have to tell your clients that it costs more to get the same services because of taxes. If your business is located in Quebec, charging taxes represents a 15% increase, which can seem significant to some people. <br /> <br /> It is never fun to contact your clients to <a href="https://www.momenteo.com/blog/how-to-inform-your-clients-of-a-rate-increase" target="_blank">announce a rate increase</a>; however, stay honest and, if possible, give a delay so they can prepare accordingly.</p> </li> </ul> <p></p> <ul> <li> <p><strong>You will have the possibility to claim taxes on your business expenses</strong><br /> <br /> Finally, if you start a business, there are great chances that you need to buy products and office supplies. If you decide to charge taxes before reaching $30 000, you will have the possibility to claim taxes on these deductible expenses and, therefore, get a tax refund on these items. It may be very interesting if your business has many expenses. <br /> <br /> Do not hesitate to contact an accountant if you have any questions. Together you can set up a strategy that meets your needs. </p> </li> </ul> <p></p> <h3><strong>How can I manage taxes in Momenteo?</strong></h3> <p>If you need to charge taxes and use Momenteo’s invoicing software, here is how to proceed. </p> <p>Get to the settings and click on Invoices, and then on Taxes. You can add all the relevant taxes to your business from there. Click on Add a new tax, and choose a country and a state to access all the saved taxes on our software. You can also add the tax numbers you receive when registering; which will appear on your invoices. If your business is in Quebec, you must add the QST and GST.</p> <p>You can manually add or remove taxes at the first step when creating an invoice. Some services or products can be non-taxable. Also, when you create a new invoice item, make sure the tax case is marked if you want it to be taxable.</p> <p>In conclusion, the most important thing to remember here is that it is mandatory to register for taxes when your business reaches $30 000. However, as we have seen, registering has many advantages. Not registering at the right time is a<a href="https://www.momenteo.com/blog/the-most-common-errors-selfemployed-people-make-when-doing-their-accounting" target="_blank"> common error made by self-employed people</a>. Consequently, as mentioned above, take the time to meet an accountant to know the most suitable option for your business. </p> <p> </p>