Buy low, sell high‚ so goes the mantra of stock brokers. Earn more, spend less - and that's the mantra of freelancers, professionals and small business owners. As a self-employed person, you always have to deal with both ways to boost your self-employed income.
Earn more money & cut your expenses
First, let's look at what is likely your best ways to earn more money: work smarter and add more value to what you offer. Second, let's look at what is likely your biggest expenses: your car, your house and your supplies. Consider these five ways to boost the amount of money you make and keep.
Earn more money: Work smarter
To earn more money, you don't need to work longer hours. Instead, you need to work smarter. One tip to working more productively is to plan time to recharge and rejuvenate your body and mind: Take a break. Take a nap. Take a walk in the park. Build in time and activities for yourself. Another tip to working smarter is to get organized and more automated. In today's world, that means taking advantage of software tools and apps to make your business more profitable.
Earn more money: Add value
Rather than charge by the hour, consider charging by the project. Base your sales pitch not on what it costs your client, but on the value of the benefits you bring to your client's business. Think saving time and increasing profits. If you sell a product, offer value-added extras to boost your profit margin. Maybe you can back up your product with superior expertise or service or with your reputation for honesty and good work. Clients will pay more for those benefits.
Cut your tax bill: Vehicle expenses
In Canada, you pay a 15 percent federal tax on your first $47,630 of income. Depending on where you live, you'll pay at least another 4 percent in provincial or territorial income tax. Taxes take a good chunk of your earnings. Any deductions you can apply against your income reduces the amount you pay. Your vehicle expenses can lead to a lot of tax savings. But, make sure you're following the right CRA rules. First, record the odometer reading on the first and last days of your business year (or the first and last days that you used your car for business). That gives you the total number of kilometres. Then use a car mileage log book to record each of your trips for business. At the end of your tax year, you can figure out how many of your total kilometres were for personal use and how many were for business use. If your car travelled 40,000 kilometres with 8,000 of them for business purposes, then you used your car 20 percent of the time for business. For fixed and operating vehicle expenses, you can then claim 20 percent of their value as a deduction. For gasoline expenses, you can claim the total documented in your car mileage log book for those 8,000 kilometres. Because recording the business trips you take with your car is repetitive and performed daily, consider automating the process.
Cut your tax payable: Home expenses
To figure out how much of your home's operating expenses you can deduct, you need to determine two things:
- How much of your home is dedicated workspace, defined as where you regularly conduct at least 50 percent of your business
- How much of that space is used for your business, not your personal needs.
First, calculate the total space of your house. Then calculate how much of it you use for your dedicated workspace. If your home has 1500 square feet and your workspace takes 100 square feet, say the size of your den, then your dedicated workspace is 6.67 percent of your total space. Then determine how much of that 6.67 percent you use for business use. If you spend six hours a day in your workspace, that's 25 percent of the time. Twenty-five percent of 6.67 percent is 2.67 percent. You use that figure to establish how much of your operating expenses are tax deductible against your business income. Enter those amounts on the Statement of Employment Expenses. Remember that the operating expense must apply to your workspace. So while you can't claim the paint you used on your garage, you can claim what you spent on heating your house.
Cut your tax payable: Supplies
Supplies (pens, paper, pencils, etc.) that you buy to conduct business are fully deductible as an expense. But you must use those supplies directly for your business. Enter the amount on your Statement of Employment Expenses. If you buy depreciable assets, such as furniture or a smartphone, you have to follow the rules for claiming the capital cost allowance.
