Being self-employed can be great. You can have the opportunity to work from home, create your own success, acquire the rewards personally and most importantly, be your own boss. However, a common problem faced by independent contractors is the failure to stay on top of their finances.
A recently aired episode of the T.V. show, Money Moron, illustrated this by reporting the story of Ryan, a young sole proprietor, who was drowning in financial trouble and as a result, his relationship with his expecting wife, Lisetty, was deteriorating.
Poor Financial Planning
Due to his high earnings and lack of proper financial planning, Ryan spent money recklessly. He ate at high-end restaurants on a regular basis, purchased trendy attire, and paid massive phone bills. In addition, he co-owned a rental property with a friend that was losing money monthly. As a consequence of the high personal expenses, debt as well as tax payments to government, Ryan found himself in a difficult financial situation. This was worrisome to his wife who was unsure of whether they would be able to financially provide for their future child. Hence, she decided to take matters into her own hands and request Money Moron to provide guidance to her husband regarding money management.
Self Employment Tips from Tax Accountant – Allan Madan
Ryan, eager to save his marriage, agreed to receive help and change his financial state of affairs for the better. The first and most important step taken was to meet with a Tax Accountant, Allan Madan, who specializes in self-employed individuals and has vast experience dealing with such circumstances.
The first concept explained to Ryan was that the income available for his expending is not the gross income of $90,000, but rather the amount after business expenses and taxes. This helped Ryan become aware and have a clear picture of the amount he can actually spend from and how to budget for each month in order to pay off the debt as well save for the new baby on the way.
Next, he was advised to use different credit cards for business and personal expenses in order to keep track of them separately. This will allow him to be more organized and have a record of all business expenses that can be claimed as deductions on the personal tax return to reduce taxes.
Another helpful suggestion provided to Ryan was to sell the rental property as it was losing money. The proceeds from the sale could be used towards paying off his debt.
By sincerely following these suggestions received, Ryan had created a financial plan which would allow him to pay off all liabilities within a period of six months. This accomplishment provided the young couple with immense relief, greater marital happiness and trust in each other.
Financial Stress for Self Employed Individuals
This kind of financial stress is common for many self-employed individuals. The best way to be in control of your money matters is to maintain a record-keeping mindset and keep track of all business income and business expenses. As well, it is critical to find an excellent Tax Accountant who is an expert in self-employment taxes and can provide you with tax savings. For more information on self employed individuals in Canada check out our blog on how to save taxes for self employed in Canada.
About the Author – Allan Madan
Allan Madan is a CPA, CA and the founder of Madan Chartered Accountant Professional Corporation . Allan provides valuable tax planning, accounting and income tax preparation services in the Greater Toronto Area.
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