Perfectionism and editing: getting unstuck

Photo by unukorno. Some rights reserved.

I recently attended an Editors Canada webinar “Taming the Inner Perfectionist” by Suzy Bills. Perfectionism is common among editors. It has its good side: motivation to do great work, and its bad side: fear of failure. Bills’s webinar outlined a wise strategy for setting realistic expectations and at the same time supporting yourself so that you can do the best work possible.

As I listened, the discussion of how perfectionism can lead to procrastination made me think about what makes me feel “stuck” on a project. I find that editing insecurity sometimes strikes at the start and finish of the project, and it can lead to inefficiency. At the start of the project, sometimes I find it difficult to prioritize all of the tasks, or I feel as if I have to decide every possible style issue before starting to edit the first page. At the end of the project, I’m tempted to re-check my work or I worry that I’ve forgotten to do something.

Getting started

My two main strategies for getting going on a new project when I’m feeling some uncertainty are building momentum and reducing the pressure. This is how I build momentum:

• Start with housekeeping tasks such as adding the client and project to my spreadsheet and time tracking software. These routine tasks are soothing, make me feel I’m making progress, and build confidence by reminding me of my past successes.
• Start a project notes document with any special instructions from the client. This is a way to break the project down into tasks and gives me confidence that I won’t forget a crucial requirement.
• Do easy tasks in the manuscript, such as removing extra spaces and paragraph breaks, setting the correct styles, and formatting the body text and headings. Again, these are easy tasks that make progress. Not only does it make sense to do them first, but they also give me a sense of familiarity with the manuscript.

To reduce the pressure, I often do the following:

• Tell myself that I’ll return to the first chapter to check my work and make sure it is consistent with the editing in the rest of the manuscript.
• Write down tasks to do later and questions to answer later on a to-do list in the project notes file. This keeps me from getting bogged down with too many decisions, and writing a note frees me to forget about it for now. I find that many decisions are easier to make once I’ve seen more of the manuscript, so putting off some style decisions seems to be more efficient in the long run.
• If I feel I’m working very slowly on a particular task or section of the manuscript, I turn off my work timer to remove the pressure to work “fast enough.” Once I finish the task, I can judge how much time I think it should have taken and log that.

Delivering the work

At the end of the project, it can be hard to let go. At this point, being systematic about making sure I’ve met all of the job requirements builds my confidence that I’m delivering good work. I use notes and to-do lists to keep things from falling through the cracks.

• I check my project notes file or the client’s original email to make sure I’ve done everything they asked for and to check for special instructions about delivery (and invoicing).
• Most importantly, I go through my to-do list in the project notes file to make sure all tasks are completed. At a minimum, my to-do list generally has reminders to check the table of contents, reread all of the track changes comments, and do a final spell check. Ticking off the items gives me confidence that the work is finished.
• Other checklists: the client may have a house checklist, especially for proofreading. I also have a standard checklist for proofreading that I go through.

Different editors will have their own strategies, but for me, these habits help get me moving on intimidating projects, manage decision fatigue while I’m working, and reduce delivery anxiety at the end. You can’t be perfect, but supporting yourself so you can do your best work will improve the quality of your work and your satisfaction in doing it.

From Contact to Contract: How Editors Get Clients to Work with Them

From Contact to Contract: How Editors Get Clients to Work with Them, edited by Karin Cather, is the first in Editors Canada’s new series on the business of editing. In this short book, nine highly experienced editors offer their advice and perspectives on how to find clients and build agreements with them. The topics covered include the following:

• Cold calling
• Networking
• Applying for jobs effectively
• Building a relationship with a prospective client, including ways to build trust
• When and how to do a sample edit
• Deciding whether to accept a client or refer them to a colleague
• Estimating a project

Contents

1. Introduction
2. Evaluating the client
3. How to respond to potential clients: Three case studies
4. How to impress a client from the first email
5. Considering the client’s needs
6. Choosing clients based on mutual interests
7. Sample edits: Are they necessary and should you charge for them?
8. From another author’s perspective
9. Closing the sale: A semi-cautionary tale
10. Not closing the sale
11. Conclusion

The book isn’t a textbook of how-to instructions for these skills, but instead focuses on strategies for making the best use of your time and showing yourself to your best advantage. I would recommend it for intermediate to advanced editors who are looking for ideas about how to sharpen up their business practices. I found a number of ideas for things I could do better.

Available as a paperback or ebook.

GST for freelance editors: should you use the quick method?

Most freelancers know that they have to register to collect GST if their earnings pass a certain threshold, but many people I talk to don’t know whether to opt for the quick method or the non-quick method of GST accounting.
If your business has relatively low expenses in relation to its income, the quick method will leave you with more money. (See the end of this article for a comparison of high- and low-expense businesses.) I calculate the crossover point as being at about 28 percent: if your business expenses come to less than about 28 percent of your gross income, consider using the quick method. Here is a sample scenario.

The quick method of GST accounting

If you use the quick method, you collect GST on your earnings and then pay a set percentage back to the CRA. You don’t have to keep track of how much GST you pay on your business expenses because you won’t claim those back. As the name implies, the bookkeeping is about as simple as possible, especially if all of your clients are in the same province as you.

Photo by Christa Gampp.
Some rights reserved.

If you use the non-quick method (I can’t find another name for it), you count up the GST that you collected, and you pay it all back to the CRA. Then you count up all the GST you spent over the year on your business expenses (business use of home, software, accounting and legal fees), and you claim that back. It’s not that much more complicated, but you have to track how much tax you pay on every business expense.

The quick method for freelance professionals

What you want to figure out is which remittance method will leave more money in your account. Here is a comparison of the two methods for a hypothetical freelancer. This freelancer lives in British Columbia, and all of their clients are also in British Columbia. They work from a home office and deduct business use of home as part of their expenses.

GST collected and paid for a hypothetical freelancer

Total income invoiced	$50,000
5% GST collected on income	$2,500
Total business expenses	$10,000
GST-eligible business expenses	$5,500
non-GST-eligible expenses:* monthly rent of $1,500; 25% business use of home	$4,500
Total GST paid for business expenses (5% on $4,500)	$262

*Non-GST-eligible expenses are expenses that are not taxed. This freelancer doesn’t pay GST on their residential rent.

GST remitted for our hypothetical freelancer

	Quick method	Non-quick method
GST to remit	3.6% remittance rate on $50,000: $1,800	everything collected: $2,500
GST paid on business expenses claimed against remittance	$0	$262
1% bonus available for those who use the quick method: 1% of GST-eligible income to a maximum of $300	$300	$0
Total remitted	$1,800	$2,238
Total kept	$1,000	$262

Our sample freelancer keeps $1,000 of the GST they collected. After you subtract the $262 of GST that they paid on their business expenses, they have gained $738 by using the quick method.

Other scenarios

Here are some factors that could change the above result:

• Not charging GST on all of your income. If a lot of your clients are outside Canada, you won’t collect GST on this income, which means the amount you keep by using the quick method is lower. In the above scenario, if all of our hypothetical freelancer’s income came from outside Canada, they would collect no GST and using the quick method would leave them with $0, while using the non-quick method would leave them with $262.
• Paying more GST on your expenses. This could happen if none of your business expenses are GST exempt, if a lot of your expenses are paid to a provider in another province with a higher tax rate, or if your total business expenses are simply higher. We could cook up a scenario here for a freelancer with important clients in the U.S. who subcontracts out a lot of work to a contractor in Ontario that would tip the balance to favour the non-quick method.

Appendix: comparing the methods for high-expense versus low-expense businesses

What type of business should definitely use the non-quick method? One with high expenses in relation to its gross earnings. For example, a business that buys something at wholesale prices and sells them at retail prices without too much of a margin on the transaction. Here’s a quick and dirty comparison using completely made-up numbers. Both businesses have the same net income of $50,000, but the high-expense business pays almost as much GST on its expenses as it collects on its sales, so if it used the quick method, it would lose $9,000 instead of keeping a GST credit of $2,500.

	Low-expense business	High-expense business
Gross income	$60,000	$250,000
Business expenses	$10,000	$200,000
Net income	$50,000	$50,000
5% GST collected on gross income	$3,000	$12,500
5% GST spent on expenses	$500	$10,000
Quick method: GST retained minus GST spent on expenses	$640	–$9,000
Non-quick method: GST retained (what you spent)	$500	$10,000
Non-quick method: GST remitted (what you collected minus what you spent)	$2,500	$2,500

CRA links for GST information

• Registering for a GST/HST account
• Quick method of accounting for GST/HST
• Electing to use the quick method

Editors Canada Conference 2016: Jessica Oman on a simple growth plan for your business

“I’m sure I can fit that in.”
(Photo by Kaarina Dillabough. Some rights reserved.)

“Get Booked Solid” was the title of this presentation. Irresistible. I couldn’t let a conference go by without attending at least one talk about marketing my services.

Four main errors freelancers make

Jessica suggested that most freelancers who aren’t happy with the amount of work they’re finding are making four mistakes:

1. Allowing the feast or famine cycle
2. Marketing in a nontargeted way
3. Applying marketing strategies inconsistently
4. Not having a plan

Some better ideas

Offer value up front. Most people you talk to don’t need you now. To keep them from forgetting you, offer them something of value right away. Talk about the challenges they have in their work, and then offer them something to help them with that problem, even if it’s a link to a blog post. You can also give away a report or a guide, a sample edit, or a free consultation.

Follow up with your leads (a lead is someone who has expressed an interest in your service). Send them relevant information or case studies about people in their industry or find other things you can give them that will be helpful. Jessica suggests that she usually talks to people about five times before they start working together.

Convey the transformation that your service will bring to their business. Always look for ways to communicate how your service will make their lives easier. (This is relevant to price, as well. If a client is convinced that you’re going to add a lot of value to their business, they won’t balk at your rates.) Do this by sharing testimonials about what you did and how it helped your client. You can also share case histories about other companies who improved their business by hiring editors. Or you can share stories about companies who didn’t hire editors and suffered public disasters as a result (using fear to help sell your service).

Identify your ideal customer:

• Editing tasks
• Medium
• Subject matter
• Field
• Audience
• Demographic details of the customer

Find out where your ideal customers hang out, and go there. Also, introduce yourself as the editor who works for your ideal customer. Many of us are generalists who work on a variety of materials, but saying so is just not memorable. Jessica suggests that you introduce yourself as the editor you want to be for the best chance of having the work you want come to you.

Be consistent in your marketing efforts, and measure the results:

• Number of leads
• Number of customers
• Conversion rate: leads who turn into customers
• Value: how much each customer spends
• How long the relationship lasts
• Whatever else is meaningful to you

Avoid thinking and acting from a scarcity perspective where you take jobs that are not ideal because you’re afraid you won’t get anything else. Try to run your business from a perspective of abundance where you believe you can afford to give something away, and you can afford to hold out for your ideal client.

Insurance for freelance editors: WorkSafeBC

Keep your home office ergonomic.
Photo by Janet 59. Some rights reserved.

As a freelancer, you may be without a safety net if you lose your ability to work—especially if you don’t have a spouse with employee benefits. Well, here’s a start: in BC, you can opt for voluntary WorkSafeBC coverage. Yes, editing is a very safe job, but there’s still a risk of developing repetitive strain injuries, or neck and back problems.

Personal optional protection

WorkSafeBC offers personal optional protection for self-employed people. This will cover your lost income and pay your medical expenses if you are injured in your work. You can apply to cover from $1,500 to $6,492 of monthly gross salary, and because of the low workplace risk for editors, coverage is not expensive. Editors fall into rate class 762043: Writing, Publishing, or Map Production (no printing). The rate for this classification is $.16 per $100 of coverage (for 2021), so to cover a gross salary of $2,500 per month, the annual premium will be $48.

Incorporated businesses

You can’t apply for coverage if your business is incorporated; only the owners of proprietorships and partnerships are eligible (see item 12 on the application form).

Limitation of legal action

If you opt for WorkSafeBC coverage, you might be limiting your right to sue your client if you are injured on the job (see item 11 on the application form). This is the basic term of the “compensation bargain” behind mandatory worker coverage programs. The positive side is that some clients prefer to deal with contractors who have WCB insurance.

How to register

You can apply for personal optional protection online. There’s also a registration form you can fill out and send in.

Further reading

• WorkSafeBC classification and rate search page
• Wikipedia: Workers’ compensation
• Workers Compensation Act

Change to GST for BC freelancers

Photo by Jorbasa. Some rights reserved.

On April 1, 2013, BC went from HST back to GST. How does this affect freelance editors?

Freelance editors: Here’s what you need to know

Do I need to register for a PST number?

No. There’s no need to apply for a PST registration number because professional services other than legal services are exempt from PST.

What tax do I charge?

From April 1, 2013, editors charge GST only. Use your existing GST/HST number.

Place of supply

The place of supply rules stay the same as before: an editor who lives in BC charges a client the HST or GST rate of the province where the client is located (see the rules about place of supply). So I charge BC clients 5% GST, but when I work for a client in Ontario, I charge 13% HST. As before, when I work for a client outside the country, I charge no tax at all.

GST/HST rates by province (information taken from CRA)

This is how much GST/HST you charge a client in this province.

Province	Before April 1, 2013	After April 1, 2013
Alberta (GST)	5%	5%
British Columbia	12% (HST)	5% (GST)
Manitoba (GST)	5%	5%
New Brunswick (HST)	13%	13%
Newfoundland and Labrador (HST)	13%	13%
Northwest Territories (GST)	5%	5%
Nova Scotia (HST)	15%	15%
Nunavut (GST)	5%	5%
Ontario (HST)	13%	13%
Prince Edward Island	5% (GST)	14% (HST)
Saskatchewan (GST)	5%	5%
Yukon (GST)	5%	5%

Quick method remittance rate

If you use the quick method of GST/HST accounting (this is probably the right method for editors to use, unless they subcontract out a lot of work), your remittance rate is now 3.6% for BC clients. This is the remittance rate for a service provider based in a non-participating province (which BC is now) to a client in a non-participating province. (A “participating” province has HST; a “non-participating” province has GST.) Your remittance rates for income earned from clients in other provinces stays the same (except PEI, which instituted HST this April 1). Don’t forget that this new 3.6% remittance rate for BC clients only applies to your income from April 1 onward.

Quick method remittance rates for work done in BC (information taken from CRA)

This is how much GST/HST an editor in BC remits.

Client is in this province	Rate before April 1, 2013	Rate after April 1, 2013
BC (participation changed)	8.2% (part.)	3.6% (non-part.)
Ontario (participating)	9%	10.5%
Quebec (non-participating)	2.1%	3.6%
Nova Scotia (participating)	10.6%	12%
Prince Edward Island (participation changed)	2.1% (non-part.)	11.3% (part.)
Other participating province	9%	10.5%
Other non-participating province	2.1%	3.6%

Sources for my information

Changes to the Harmonized Sales Tax
BC Government: PST exemptions (see the sidebar “Non-Taxable Sales & Services”)
CRA: List of GST/HST rates by province
CRA: Place of supply rules for services

As always, this is backed up by a few calls to the CRA help line.

Other tax information

See also:

• Income tax for Canadian freelancers: Allowable deductions for freelancers and small business owners
• Income tax for Canadian freelancers: T2125 Declaration of business or professional activities

Janet Mackenzie on running a freelance editing business

The Editor’s Companion, by Janet Mackenzie, has a great chapter on starting a freelance editing business. In eighteen pages, she deals with all the major points:

• Qualities that make a good freelancer
• Running your office and being productive: time management, dealing with clients, stress, professional development, choosing projects
• Business considerations: what a business plan can do for you, insurance, bookkeeping
• Contracts: what needs to go into a contract, and a nice half-page sample contract

What to charge

To calculate how much you need to charge to earn your target income, start with a list of business expenses, the biggest of which is your own labour. As part of the cost of labour, consider the time you will spend on administration, project management, and the cost of employment. Employment costs are vacation, sick time, and pension plan. The author suggests that the “loaded” salary that includes these expenses is 17 to 25 percent more than a person’s base salary. (When you take into account the cost of maintaining a work space, I’ve seen estimates of 40 percent or more as the markup that a contractor needs to charge above an equivalent in-house rate.)

Hourly rate

Mackenzie suggests that an editor who is competent according to the Australian Standards for Editing Practice is worth at least AUD 50 per hour (about CAN 53; this book was written in 2004). She suggests giving a price by the job rather than by the hour, and feels it’s quite appropriate not to reveal your target hourly rate to the client (“If he presses you, say primly that your accountant has advised you not to reveal it”). She mentions in passing that hourly rates are not a good predictor of project cost because working speed varies quite a lot.

Work flow

Mackenzie suggests a three-column table—see below—to track your schedule of projects to come, in progress, and due. I think I’m going to give this format a try. I’ve been marking dates to receive and send projects on Google Calendar, but I find that the display gets too cluttered when I try to show which projects are in progress.

Date May	Due in	Working on	Due out
1	Joe Bloggs copy edit, first round
2	Flash Magazine, July issue, editorial	Bloggs copy edit
3		Bloggs copy edit, Flash editorial	Flash editorial
4		Bloggs copy edit

Because many projects are delayed or sometimes cancelled altogether, Mackenzie recommends overbooking slightly. “Bite off a little more than you can chew, and occasionally chew like hell.”

Reviewed from a library copy of the book.

Neil Gaiman on freelancing

A while ago Neil Gaiman gave a commencement address in which he shared some secrets of freelancing (starts at 13:00 on the video). He says there are three secrets to keeping work:

1. Do good work.
2. Deliver on time.
3. Be pleasant to work with.

You get work however you get work. But people keep working in a freelance world—and more and more of today’s world is freelance—because their work is good, and because they’re easy to get along with, and because they deliver the work on time.

And you don’t even need all three. Two out of three is fine. People will tolerate how unpleasant you are if your work is good and you deliver it on time. People will forgive the lateness of your work if it’s good and they like you. And you don’t have to be as good as everyone else if you’re on time and it’s always a pleasure to hear from you.

—Neil Gaiman (transcription mine)

Writing income for novelists

I just ran across this writeup by Jim C. Hines on his writing income throughout his career. (See also 2020.) Some things I notice:

• This is the first year (at least in about four years) that his US income was more than his foreign sales and royalties.
• He still has a day job.
• Short fiction isn’t a big source of income for him.
• In 2010, e-book income made up about 3 to 5 percent of the royalties.

And while we’re on the subject, see Unasked-for Advice to New Writers About Money from John Scalzi, who made $164,000 in 2007.

Standard rates for freelance editing jobs

How much can you expect to pay a freelance editor? How do you estimate a freelance editing job?

For freelance editors and their clients, estimating the cost and time for a project is an important skill. Here are some of the factors to consider when estimating a project, as well as some industry rates.

Factors that affect editing speed

Difficulty of the material

The level of specialization and complexity of the document are important factors.

• Is the material very specialized? Is there a lot of specialized terminology that the editor will have to look up or define a style for? Scientific, academic, and technical material (such as user manuals) takes longer to edit.
• Is the formatting complex? Are there many levels of headings, figure and table captions, footnotes and endnotes, and citations to format?
• Are there complex stylistic considerations such as mathematical formulas, other languages, units, currencies, etc.?
• Is there a defined style for the document, or does the editor have to try to infer the style from the document itself? A style sheet can make the work go more quickly. On the other hand, long, complex, and contradictory guidelines can slow it down.

Current state of the manuscript

The state of the manuscript before editing makes a huge difference. The more errors the manuscript contains, the more time it will take to edit, especially if there are places where the meaning is unclear, or if the style and formatting are very inconsistent.

Clarity of requirements

Has the editing task been clearly defined? Has all the information needed to complete the job been provided? For instance for a stylistic edit, has the level and style of language to be used been specified? For a copy edit or proofread, is there a style sheet, and is it complete and consistent? Does the client respond quickly to questions?

Freelance editing rates

Some suggested standard pay scales and productivity rates for editing:

1. What editors charge. Some guidelines on productivity rates and billing from the Editors’ Association of Canada.
2. Janet Mackenzie suggested in her book The Editor’s Companion, written in 2004, that an editor who is competent according to the Australian Standards for Editing Practice is worth at least AUD 50 per hour (about CAN 53).
3. Editorial Rates (updated April 2020) from the Editorial Freelancers Association in the US. A lot of people consider these rates to be low.

Freelance indexing rates

The Indexing Society of Canada has some notes on rates for indexing services. This is helpful both for indexers and their clients.

But that’s more than my hourly rate in my salaried job!

A freelancer’s hourly rate is higher than a salaried employee’s rate for a comparable job because it reflects the total cost of doing business. This includes expenses that are included in a salaried employee’s compensation:

• Medical insurance premiums and medical and dental treatment.
• Canada Pension Plan. Employees have half their CPP contributions covered by their employer. Self-employed people pay the whole thing. For the 2019 tax year, the deduction is 10.2% of taxable income to a maximum of $5,498.
• Vacation pay, which is minimum 4% in BC.
• Maintaining a workspace, computer, software, and reference materials.

A freelance business has some extra expenses as well:

• Non-billable time spent finding work and handling administration.
• Professional development: improving skills, staying up to date, and taking courses and certification exams.
• Many editors need disability insurance, commercial liability insurance, and errors and omissions insurance.

There are various rules of thumb for how much a contractor needs to add to their hourly rate to approximate the pay of a salaried in-house employee. I think I’ve heard everything from 25% to 150% on top of the employee’s rate. A simple rule of thumb for calculating a freelancer’s hourly rate is to take the target annual salary and divide by 1,000.

These numbers can give you something to work with when you’re comparing the cost of freelancers to in-house employees. And if you see that you’re paying an unsustainably low rate for freelance work, you’ll know that you can expect a high turnover as your freelancers leave you for higher-paying contracts.

A scam that targets editors

(Updated February 2021.)

This morning I got a scam request to write an article for an upcoming workshop. The writer mentioned having a speech-distorting condition called apraxia to explain why they preferred to use email and SMS rather than phone conversations. This is fine, but once I asked for more information about the project, the classic characteristics of the scam started to become clear, and when I Googled a few key items in the message plus the word “scam,” I found other people talking about this exact format of scam.

This isn’t the first time I or an editor I know has been approached for a cheque overpayment scam. Here’s how it works: the message is about an editing or translation job, typically with a very quick turnaround time. The client pays by cheque. After the payment has been made, the client “discovers” that they have overpaid and asks the editor to send back the overpayment, or the payer asks the editor to send some money on to another payee. After the editor cashes the client’s cheque, it turns out to be invalid.

Signs that an editing job might be a scam

Watch out for the following clues that something might be wrong with a message about a job.

• There are signs that the client is contacting many people at the same time. The email you receive might not be addressed to you by name, or you are bcc’d on an email addressed to someone else.
• The information about the client is incomplete or inconsistent. For example, it’s signed “Sandy Smith” but the email address is “joe-bloggs@domain.com.” Or the name of the person writing to you doesn’t match the byline of the attached article they say they wrote.
• The client doesn’t seem to care about who you are and what your qualifications are, and they don’t seem to care about the quality or details of the project. In my experience, this has been the tip-off. Real clients who want to pay you to work for them really care about their project and are anxious to hire someone who will do a good job. When you ask for more information about the project, they’re usually eager to give it to you. The scammers come across as strangely hurried and indifferent.

How to protect yourself

Be observant when you get email from a potential new client. Try searching online for the name and email address and see whether they are connected to an existing person. Look for details that show that the project is a real project. And be cautious with cheques from new clients you don’t have complete confidence in.

• Make sure the name of the issuer of the cheque matches the name of the client. Do a web search on the name of the client and name of the cheque issuer.
• Be very suspicious of a cheque for too much money. The Canadian Anti-Fraud Centre recommends against accepting any cheque for more than you are owed.
• Be aware that just because the money is made available in your bank account, that doesn’t mean the cheque was valid. According to a CBC article on this scam, “Depending on how good the counterfeit is, it can take weeks for a financial institution to detect the fraud. By then, the scammers are long gone with the money, and the victim is on the hook for the amount on the cheque.”
• Consider using PayPal, Interac e-transfer, or bank transfers.
• You can decrease your risk by asking for a deposit before starting work, but again, consider that bad cheques can take time to make themselves known.

Further reading

• Two more sightings of this scammer: Ruth Thaler-Carter and the Muffin writing blog.
• The Canadian Anti-Fraud Centre’s entry on cheque overpayment fraud, which can take various forms. They recommend that you never accept a cheque for more than what you are owed.
• CBC news article about an overpayment scam and follow-up.

Income tax for Canadian freelancers: Track your deductions

Updated for the 2020 tax year
Maybe you started a full-fledged business, maybe you just did your first freelance assignment; either way you need to know how to declare your self-employment income. Even if you plan to get an accountant to do your taxes, knowing what you can deduct and keeping your information organized will make the process faster and easier. In part 2, I talk about filling out your Form T2125: Statement of Business or Professional Activities.

Preparing for tax time

Even if you plan to dump the whole job on an accountant, keeping organized records throughout the year will make a huge difference at tax (or audit) time. From the simplest to the most sophisticated, here are four methods you can use:

1. Get an accordion file. File expenses according to category (not date).
2. Buy a notebook or accounts book and write down expenses and income according to category.
3. Set up a spreadsheet to track income and expenditures.
4. Use accounting software.

What records should you keep?

• The CRA suggests that in addition to tracking your income and expenditures you back up your records with source documents: sales invoices, receipts, contracts, bank deposit slips, etc.
• Make a note on your bank statement to explain any large deposits that are not business income. Seven years later you may be asked why you didn’t declare that money as income.
• If your bank doesn’t guarantee it will maintain your electronic records for six years from the end of the last tax year to which they relate, then you need to print or save your bank records yourself.
• Credit card bills aren’t considered equivalent to receipts (but by all means, save them as extra documentation).
• Print e-receipts or save them as clearly labelled PDF files.
• Consider photocopying or photographing paper receipts, because some of them are printed with ink that fades quickly.

Allowable deductions

Business use of home

• Proportion of home used for business: This can be calculated as either the number of rooms used for business out of the total number of rooms in the house, or as a percentage of the floor space. If you use a room for both business and personal use, estimate the percentage of the time that the room is used for business purposes, but if it’s used for business only, you can consider it to be used for business 24 hours a day.
• Allowable expenses: Rent, insurance, utilities, strata fees, maintenance, interest on the mortgage.

Taxes for corporations are way beyond the scope of this article, but one quick warning: if you have an incorporated company and you rent part of your house to the corporation, the capital gains on your house become taxable.

Phone

• Cell phone fees are deductible, but you are required to calculate the percentage of phone use for business.
• I’m told (but haven’t checked with the CRA) that with land lines, the monthly fee is only deductible if you have a separate line registered under the name of the business. If the phone is registered to you personally, you can only deduct long-distance business calls. (I imagine this is because local calls are not itemized on the bill, so there is no record of personal versus business use.)
• Phone hardware is deductible.

Internet

You can claim a portion of your internet expenses. Again, calculate what proportion of your internet use is for work. If you claim internet or a computer as business expenses, your internet traffic and computer contents become examinable in an audit.

Business use of car

• Tracking: Keep a mileage log. The easiest thing to do is to take an odometer reading at the beginning and end of the year and record either all business trips or all pleasure trips (whichever you do fewer of).
• Allowable expenses: gas, repairs, maintenance, depreciation, interest on a loan, lease payments.
• Note that the car has to be insured for business use.

Entertainment

This is one is tricky and often disallowed. Here’s what I’ve been told.

• The expense has to be for the purpose of getting or keeping business.
• The expense is generally incurred by taking a client out for entertainment.
• Only clients are eligible, not partners.
• Only 50% of the expense is deductible.
• Keep a record of the names of the clients and why you took them out.

Staff meals are a different situation. If you hire someone and part of the contract is that you will provide food, that expense is 100% deductible.

Travel

You can claim travel you need to do for work, or to get to professional development events. Your travel expenses will be deducted all together, but keep detailed records of how the expenses break down.

• Allowable: getting there, travel while there, accommodation, meals.
• If the trip is part pleasure and part business, prorate the claim accordingly.
• Travel meals: probably have to be outside the city and are only 50% deductible.

Research and professional development

• Professional development covers things like courses, books, and magazines.
• For research, keep records and make sure you can show a clear connection between what you bought and how it contributed to your business.

Capital cost allowance

This applies to anything that you buy—used or new—that has a useful life at the end of the year. Usually this will apply to items that you spend more than about $300–$400 on.

• For capital costs, you don’t deduct what you paid for the item; you deduct the amount that it depreciated during the year. Look up the percentage to write off in the classes of depreciable property list.
• If the business buys something that gains value (antique furniture or real estate, for instance) you will have to declare a capital gain when you sell it.

Bad debt

Since you are using the accrual method of accounting, you report your income in the year you earned it, regardless of when you actually get paid. So it might happen that you report income that you never actually receive. Say you did a contract in late 2019, reported the income in that year, and never got paid. You can deduct that income the next year as a bad debt. You could also file a correction for the 2019 taxes, deducting that income, but it probably looks better to claim the amount as a bad debt the following year; at least that way there’s an explanation.

Back expenses

If you forget to claim an expense, you can amend your tax return for that year to include the expense, and you will be credited with the corresponding saved tax (without interest). You can do this going back a maximum of six years.

Deductions not related to your business

• Medical: If your eligible medical expenses (not provincial medical plan premiums) are more than 3% of your income or $2,352, whichever is less, you can deduct them. You can claim medical expenses for any 12-month period ending in 2019 and not claimed in 2018. You can also transfer them between spouses, so make sure the lower-income spouse claims them. To find out whether an expense qualifies, see the list of eligible medical expenses and the list of authorized practitioners by province.
• Charitable donations can be carried forward for five years. (See “Carry forward” on the CRA page for Line 349: Donations and gifts.)

CRA links

• CRA: Sole proprietorships
• CRA: What is a business?
• CRA: List of common business expenses
• CRA: Free tax help for small businesses
• CRA: Corporations

The CRA help number for businesses and self-employed people is 1-800-959-5525. See the CRA phone numbers page for their hours.

Other tax information

See also:

• Income tax for Canadian freelancers, part 2: T2125 Declaration of business or professional activities
• Change to GST for BC freelancers

Income tax for Canadian freelancers: T2125 Declaration of business or professional activities

Updated for the 2020 tax year

How do you declare freelance income?

I covered allowable deductions for freelancers and small business owners in part 1. Here’s some help with filling in the T2125: Statement of business or professional activities.

Do you run a business? Are you self-employed?

If you are carrying on an activity that you intend to make a profit with, then you have a business. The simplest form of business is a sole proprietorship. This means you are not incorporated or in a partnership with anyone. You can run a sole proprietorship business without registering the business, registering a business name, or getting a business license.

The T2125 form: Statement of business or professional activities

If you’re earning money as a sole proprietorship, you simply fill in the T2125 form in addition to your basic personal income tax form. Whatever electronic income tax filing system you use can probably handle this just fine. The T2125 is available electronically; if you do your taxes on paper, you can print out a copy and deliver it along with your general income tax package.

• Where to get it: the General income tax and benefit package for 2020 doesn’t seem to be available yet (January 7, 2021), but should be soon.
• The 2020 version of the T2125 is available, but the last update is from January of last year. It doesn’t seem to be specific to the year.
• How many do you need? Similar business activities can go on the same form, but very different activities (writing and pottery) would have to go on two separate forms. I recommend phoning the CRA if you’re not sure whether two activities can go on the same form.

Sections of the form

Part 1: Identification

• Was this your last year of business? If you closed down the business during this tax year, say “yes” here. This lets the CRA know that they shouldn’t expect any more tax reports for this business.
• Main product or service and Industry code: The industry code lets the CRA know what kinds of deductions they can expect to see on the rest of the form. Editors should use the NAICS code or industry code 561410: Document Preparation Services. This code includes “editing service,” “proofreading service,” and “desktop publishing service.”

Part 2: Internet business activities

If you use your website to promoting your business, I wouldn’t consider this to apply.

Part 3: Business Income or Professional Income?

Freelance editors should choose “professional income.” (In general, “business income” applies to selling physical goods and “professional income” applies to selling your expertise.) Fill out 3B and C and ignore 3A and D.

Part 4

This is where you fill in the deductions that you’ve been tracking throughout the year.

• Rent: this refers to the rent on a purely commercial property. The rent for your living space should go into the “Calculation of business-use-of-home expenses” section in Part 7.
• Property taxes: same thing here. Put your home property taxes under business use of home.
• Other expenses: this is where many of your deductions will go: professional development, subcontractors, etc.

Other tax information

See also:

• Part 1: Allowable deductions for freelancers and small business owners
• Change to GST for BC freelancers

Editing for companies in the US: ITIN and exemption from withholding

If you’re a Canadian editor who works for US clients, a client may ask you to for an ITIN. But do you really need one?

Does the client have to withhold taxes? US and non–US source income

Does your client have to withhold tax when they pay you? Only if some of the money you earned is US source income. For the purposes of editing, my understanding is that for nonresident aliens (non–US citizens who live outside the US), US source income is any work that you do while physically in the US. All the work that you do while outside the US is non–US source income.

As long as you’re not a US citizen and you live outside the US, your client should not withhold any of your non–US source income. You might even want to note clearly on every invoice that it is non–US source income.

Form W8-BEN: Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals)

If you have no US source income, your client may still want some documentation for their decision not to withhold income tax on your pay. In this case, you should fill out a W-8BEN. It’s simple: no ITIN required.

Form 8233: Exemption from Withholding

If you do some work while you are physically in the US, it may qualify as US source income, and you might need to fill out an exemption from withholding. Without this form, your client is required to withhold 30 percent of your pay, and you’ll have to file an income tax return to get it back. The form you need is IRS form 8233 “Exemption from Withholding,” in which you explain why the Canada-US tax treaty makes you exempt from withholding.

How to apply for an ITIN in Canada

If you need to fill out an 8233 or if you need to file an income tax return in the US, you’ll need an ITIN (individual taxpayer identification number). There are companies who offer to help you with the application, but it may be just as easy (and so much cheaper) to do it yourself. The application for an ITIN is IRS form W-7.

The difficult part is getting your identification certified. There are some Canadian notaries who are able to certify the document, but even then the document has to go the US consulate for verification. If there’s a US consulate within travelling distance, the easiest thing to do is to make an appointment with them for notarial services. Bring your completed W-7 form and your passport or other identification, and they’ll make a copy of your ID, attach it to the form, and get it certified by the consul. All you have to do is send it in with the form 8233 or the tax return (ITIN applications can only be submitted with one of these forms).