One of the many things they don’t tell you in music school is what you’re really signing up for. I knew the job would take talent, and hard work, and a whole lot of luck. But what I didn’t realize was that I was on the path to becoming an entrepreneur, and I would spend every day from here on out running my own business.
I read something the other day that made the very astute point that “being a freelancer is basically like owning your own business.”
No. Incorrect. Being a freelancer is not “like” having your own business. It IS having your own business.
It’s not semantics, it’s how the government sees you, and it’s about time you started seeing yourself in the same way.
So today, a few of the questions you might have (I sure had them) about being a newly minted (even if you’ve been at it for awhile now) business owner.
Wait. Since when do I own a business?
Since whenever you started investing money, and time in to whatever it is you do.
The government defines a business as “an activity that you intend to carry on for profit and there is evidence to support that intention.”
Notice they use the word ‘intend’. That means it doesn’t matter if you’re making money or not. If you’re “intending to do something for profit” it counts as a business.
ATTENTION ALL YE STUDENTS:
That means that even if you’re still a student (full-time or part-time) if you’re working some side gigs, even if you’re not getting paid all that much, the government still sees you as a business.
No need to freak out. It’s not like they’re going to track you down. It’s a good thing! Thinking this way can actually make you some money, by getting some tax back on business expenses (I’ll talk more about that later).
Don’t I have to be incorporated to be a business?
Nope. There are a few kinds of businesses, and one of them is a corporation. If you want, you can join the ranks of Coke, Ikea, and Justin Timberlake and incorporate. There are advantages to being a corporation which we’ll talk about some point, but most of us aren’t and you sure don’t have to be to qualify as a business.
The kind of business you are is called a ‘sole proprietor’. It means that you’re the only person who owns your business. That’s the big category that encompasses you.
You might hear people throwing around that word at the bank, or see it around from time to time in your bedtime reading if you like perusing the tax code for fun.
So. I’m a business. Why does that matter?
The biggest thing that kicks in as a business is the ability to deduct business expenses from your taxes.
You’ve undoubtedly heard people talking about writing things off, or keeping a receipt after a meal in order to claim it on their taxes. They can do that because any expense that relates to your business qualifies you to pay a little less in tax.
If you’re not really sure how all that tax stuff works, no need to feel bummed out, check out this handy dandy STARTERS GUIDE TO TAX DEDUCTIONS, and then come back and join the party.
Deductions are great, they give us another tool to make money even more efficient. The more you know about what you can deduct the better.
The other reason I think it’s important to call a spade a spade (or in this case a freelancer a small business owner) is a mental one. I’ve found it’s a really important shift to think of myself as running my own show, rather than being at someone else’s whim.
There’s so much that’s out of our hands, and it’s tempting sometimes to just throw up those hands and say:
“Why is no one giving me work?”
It’s like we’re a part of a giant corporation and you’re just waiting for the boss to finally come downstairs and notice you.
That’s not the life. The buck stops with you. So create and run the business that you want.
Do I have to… do anything different… now that I’m a business?
Excellent and super eloquent question. There are a few things:
1. You need to keep clear records. Now, I have trouble with this. All my business stuff is in a giant pile in the corner of my room… but, alas, the government still wants you to keep clear records.
For corporations it’s actually illegal to mix your business and personal business, however it’s a little looser for us sole proprietors. Even though it’s not a legal obligation it is strongly recommended that you keep things separate.
It’s another reason why I recommend having different accounts for business and personal expenses (same process we set up when talking about how to PAY YOURSELF A SALARY).
2. You’ve got to keep your receipts. This kind of connects to keeping good records, but it deserves specific mentioning. YOU CANNOT CLAIM A DEDUCTION UNLESS YOU HAVE A RECEIPT. I have it straight from a friendly CRA senior agent. Nothing else will do. Just a receipt. It can be a tempting thing to just add in a number or two… you were pretty sure there was another business meal…. Usually you’re just filling in numbers, or sending things to your accountant, so no one is looking…
It’s not worth it. If you get audited (knock on wood, turn in a circle, kiss your aunt Mable) and you don’t have a receipt to back up the deduction, you’ll be in trouble.
I say, be safe.
Don’t be scared. Owning a business is awesome. You’re in charge of everything. There’s a ton to learn, not just about whatever product you’re selling, but about marketing, and finance, and taxes!! It’s a super cool thing to be doing. Don’t be intimidated by it. It’s an identity to be proud of.
So stop waiting around for someone else to do something. It’s your business. What are you going do?
Well… maybe start with keeping that receipt…
Want to start getting control of your money? How can I help?
Financial Planner/Opera Singer
Money never came naturally to me. In fact… I was a bit of a disaster. I remember (very clearly) what it feels like to be ‘financially out of control’.
And honestly, I still get stressed about money… that doesn’t stop… the difference is that now I have the tools to deal with that stress.
And those tools are what’s made it possible for me to build a life full of the things I want: art, creativity, travel, family and more.