Calculating Taxes for Self-Employed Persons and Freelancers

Calculating Taxes for Self-Employed Persons and Freelancers

12 Aug 2021 | Others

5mins read



Calculating your taxes

Unless you worked as an accountant, it’s unlikely that your first job required you to calculate your company’s corporate tax. But if you’re looking to start your own business or move on to freelancing, you will need to know what your tax obligations are.

We understand how confusing it can be to calculate your tax, so we’ve compiled everything you need to know in this article for you.

Who is considered self-employed or a freelancer?

Before you go into the math, first determine if you are an employee, self-employed, or freelancer. This can be done easily by looking at your contract.

You are employed or an employee if you perform work under a contract of service. On the other hand, you are self-employed when you provide service or perform work for others under a contract for service. Self-employed individuals are also considered as sole-proprietors and partners in a partnership.

On the other hand, freelancers often work on short contracts or contract basis. You’ll find freelancing common in the creative sector.

Self-employed vs freelancer

Still confused? Here’s a comparison between freelancers and self-employed individuals:


  • Both have autonomy over when and how to work

  • Able to express creative freedom through work





  • Does not always have the ability to choose what he works on

  • No official title may imply that one works for many clients and is not dedicated to one.

  • Does not sell products

  • Work varies from one client to another


  • Able to choose what they work on

  • Has an official title, conveys a sense of dedication.

  • The main income is derived from selling and providing services.

However, freelancers can still be considered as a type of self-employed individual at the end of the day.

What taxes do you need to pay?

So what taxes do you need to pay? You are obliged to pay for the business income you have earned in a year. This is considered as trade income and is taxed at individual income rates. However, you will only need to pay taxes if you earn more than $22,000 a year. Any less than that and you’ll be exempted from paying tax.

You are also given the freedom to decide on the accounting period. Most businesses set their accounting period at the end of December, but you can also choose a different one.

Your Statement of Accounts should be ready at the end of your accounting period, including:

  1. Profit and Loss Accounts
  2. Balance Sheet

If you’ve earned more than $200,000 in the accounting period, you will need to report your business using a 4-line statement to file your Income Tax Return. Here is what should be included in your statement:

1st Line – Revenue

2nd Line – Gross Profit/Loss

3rd Line – Allowable Business Expenses

4th Line – Adjusted Profit and Loss


If you’ve earned less than $200,000, a 2-line statement will be sufficient.

1st Line – Revenue

2nd Line – Adjusted Profit

How to reduce taxes

Even as a freelancer, you’re able to claim expenses that will help with tax reduction. One example would be business expenses. This refers to any business expense that incurs when you are running your business. 

For example, if your total business expense for the year is $50,000, you can claim $10,000 as a business expense. Hence, your total income subject to tax will be your business revenue minus this $10,000.

To find out more about what other items are claimable, click through to this link.

Basic summary 

Administrative duties like filing your taxes can be quite a chore for most freelancers and self-employed individuals. But if you organize your paperwork well and submit your claims punctually, this will ease the hassle in the long run.

Here’s a quick summary for you to have in mind as you calculate your next round of taxes:

  • Know your tax obligations
  • Decide on the accounting period
  • Keep proper records and accounts
  • Prepare a statement of accounts
  • Prepare statement
  • File income tax
  • Pay withholding tax

With that, you’re good to go! If you have any concerns regarding the incorporation of your company or require accounting services, be sure to reach out to us at Margin Wheeler