March 04, 2013 06:00 ET

Self-Employed? Tips to Avoid Tax Debt

TORONTO, ONTARIO--(Marketwire - March 4, 2013) - Being self-employed often has many advantages - being your own boss, choosing your own hours, working from home, setting your own pay and seeing your dreams come to fruition. Unfortunately poor financial planning can leave you scrambling at tax time if you don't have the funds available to pay the CRA your money owed. Below are some debt help tips and resources to help you avoid tax debt and to make the process of paying your taxes as painless as possible.

Track your receipts and invoices - Being self-employed often means a lot of additional paperwork, which can be a headache. Record keeping for tax planning and debt management requires discipline and attentiveness. Keep track of all of the receipts from business related expenses as well as copies of invoices and bills you have provided to your customers and clients. If you use a shoebox or file-folder, regularly dig in and organize them or enter the amounts into a spreadsheet to help make tax time less of a worry. While additional paperwork may be involved when filing taxes as a self-employed individual, there are also advantages to this when it comes to lowering your personal income tax.

Create a tax fund and budget for taxes - Put aside a portion of each cheque or payment you receive and don't touch that bank account! A tax fund will help prevent you from using credit or looking for debt relief options. The amount of tax you will have to pay can be hard to estimate and depends on where you live and the credits and deductions you are able to claim. A safe number is 30 percent. It may seem like a lot, but with any luck, you'll overestimate and have a head start for the following year. If you owe the CRA, make your tax installment payments on time to avoid interest penalties.

Use an RRSP - A useful way to help lower your tax bill is to contribute to an RRSP, which will reduce your tax rate. It has the additional long-term benefit of helping you save for retirement since self-employed people won't have a company pension to rely on.

If you find you are still struggling with overwhelming tax debt, contact a BDO debt help professional for the right debt solutions to get back on track.

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