Self-Employment Tax Advice for Americans Moving to Canada
Read this article for tax advice for Americans moving to Canada.
During the last decade, the number of Americans migrating to Canada has increased. The motivations vary, ranging from political displeasure to economic woes –– and in some cases even concern about climate change.
Moving from the United States to Canada is exciting for a lot of people. But it also comes with some challenges. One challenge a lot of people struggle with is the change in tax laws. Changes in tax laws are a struggle with any international move. Not just a move from the United States to Canada. This can be particularly tricky for the self-employed. To some extent, it’s a challenge to face as you come to it. But here, we’ve prepared a few tips on tax advice for Americans moving to Canada to make the process easier.
Saving for Taxes
When you’re self-employed, you’re in charge of saving enough money each month to pay taxes. It’s a responsibility many freelancers or new business owners may forget about. In addition, withholding tax as self-employed is much different from the process of withholding tax as ordinary employment.
Saving enough money to pay income tax is one of those things that becomes easier the more you do it. With regards to the amount, experts recommend saving around 25% of your monthly income. This ensures you have enough funds at the end of the year. This is advisable whether you’re in the U.S. or making a move to the North, such as to Canada.
Research Deductible Business Expenses
Monitoring expenses carefully is essential to keep your business running. However, it can also become a great advantage when it comes to paying self-employment taxes. In addition, Canadian deductibles may differ somewhat from their American counterparts. This is important to bear in mind as you explore where and how you can cut costs.
In Canada for example, freelancers can deduct their computer expenses, and vloggers can even deduct the costs of filming equipment. The details can get a bit complex though. Therefore, we recommend checking the list of deductible business expenses prepared by the Canadian government.
Keep a Paper Record
As we mentioned, it’s important for a business owner or freelancer to keep close track of expenses. The only problem is when you’re self-employed, everyday expenses like buying groceries and paying bills are easily confused with expenses necessary to support your work.
In this case, it’s recommended to be strategic with your payment options. Particularly with debit and credit cards largely going virtual in Canada, it’s easier than ever to maintain separate accounts for personal and business expenses. This way, your spending habits won’t blur lines. Also, you’ll have a clear sense of what you’ve spent on the business.
Experts also recommend generally keeping a thorough log of receipts and records, whether in paper or digital form.
Use a Tax Calculator
Adapting to new tax rates and deductibles can be overwhelming. This, together with the stress of the paperwork and effort involved in moving to another country can increase your chances of making a mistake, which is why we recommend seeking online assistance.
Just as taxes differ from one state to the next in the U.S., your province in Canada may have slightly different rates than the next one. Accordingly, there are income tax calculators specific to Quebec, Alberta, and so on, covering the major provinces and providing you with means of estimating taxes specific to your personal situation. These tools also tend to include adjustment options relating to self-employment, capital gains, and dividends meaning ultimately tax can considerably reduce the chances of making a mistake and having to face a fine.
Managing taxes is a challenge for most of us, and particularly the self-employed. It’s only natural, unfortunately, that making an international move only adds to the challenge. You will have to become familiar with new rates, deductibles, forms, and deadlines, and all in fairly short time. However, you can and will make the adjustment. Just remember to make a habit of monitoring your expenses, keeping your invoices, and using online tools when necessary.
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