Are you aspiring to become an independent contractor in Kingston? As a self-employed contractor, you’ll enjoy numerous benefits, such as reduced tax rates and flexibility. You will also have the freedom to decide how, when, and where to deliver your services.
However, being an independent contractor also comes with a few drawbacks. You won’t have the safety net to protect employees under the Employment Standard Act. So, you will not collect the Employee Insurance (EI) benefits if you fail to pay clients.
In this guide, we’ll show you the things you should know to become an independent contractor in Kingston. Keep reading to learn more.
Becoming An Independent Contractor In Kingston, Canada
The reason many people want to become independent contractors is to enjoy multiple tax write-offs and pay lower taxes than other employees. If you’ve chosen the path of self-employment, you need to know its basics, advantages, and disadvantages.
The Basics Of Self Employment In Kingston
To become an independent contractor, you need to know the basic forms of business organizations. Here are some of the options to consider.
- Sole Proprietorship: In this business organization, you are the business. You can run the business using your name so that you don’t register it. However, registration is mandatory if you add something to your name.
- Business Partnerships: Functions more similarly to a sole proprietorship. The only difference is that this form of business organization has more than one owner. Liabilities and taxable income get shared amongst all the owners.
- Corporations: These are business organizations authorized by a state to act as a single entity. Corporations offer added legal protection as a sole proprietorship and or partnership provides numerous tax advantages.
You should select a form of business organization that’s ideal for your private company, whether it’s a sole proprietorship or partnership.
How To Become An Independent Contractor
To get recognized as an independent contractor, your agreement with clients must have the following features.
- Tools and Equipment: You must agree that you’ll be using your tools and equipment to get the job done, and not the employer’s tools.
- Project Control: In the agreement, you should affirm that you’ll perform your duties independently with minimal or no supervision.
- Financial Risks: As an independent contractor, you should be ready to take financial risks such as paying for specific costs like rent and overhead costs.
- Intention: You should clearly state your intention in the agreement that you are a self-employed independent contractor.
- Profit Opportunities: To become an independent contractor, place a clause in the agreement that allows milestone payments or payment after project success.
Pros Of Becoming An Independent Contractor
Being an independent contractor comes with numerous benefits.
1. Quick Payments
Paying independent contractors is usually easier and cheaper to prepare than paying regular employees. You’ll need to come up with a payment method convenient for your clients. For international payments, consider the best currency exchange in Kingston.
2. High-Income Amount
In many cases, independent contractors tend to charge higher rates than employees in the same position. By spending most of your time delivering your services, you’ll be able to earn more profits than what you would have made as an employee.
3. Improved Flexibility
When you become an independent contractor, you’ll have the freedom to decide how you run your business, including the rates you charge. You’ll also be free to choose where to offer your services at a specific time.
4. Lower Income Taxes
As an independent contractor, you’ll enjoy several tax benefits that most employees don’t. Since you are not on a payroll, the Canada Revenue Agency (CRA) will not withhold any taxes from your paychecks. That gives you more control over your income.
5. Many Claimable Business Expenses
You can claim any valid expense required to run your business. However, it has to align with the CRA guidelines. Some of the costs you can claim include:
- At-home business expenses
- Business use of vehicle costs
- Internet, telephone, and other utilities
- Purchase of equipment for your business
Cons Of Becoming An Independent Contractor
Like any other job, being an independent contractor also has a few drawbacks.
1. Lack Of Job Security
With employment, you are sure that you’ll get paid even when the employer’s business is slowing. When it comes to contract jobs, you’ll not earn anything when you fail to secure a contract. Also, you may make losses when your agreement gets terminated.
2. No Employer Benefits
Most employers usually offer their employees several benefits, including paid vacations, health insurance, retirement benefits, and even bonuses. As an independent contractor, you are not entitled to any of these employee benefits, unless negotiated upon.
3. Many Liabilities
When you become an independent contractor, you’ll be held accountable for almost all mistakes that will occur during service delivery. If anything goes wrong, you’ll be liable for the consequences and not the company that contracted you.
4. Risk Of Not Getting Paid
If you are working as an independent contractor, it can be hard sometimes to get your clients to pay for your services on time. You bear all the risks of losses from clients who fail to make payments. Consequently, that might affect all your business operations.
If you decide to become an independent contractor, you need to understand all the tax implications surrounding your business. You want to make sure that you operate within the limits of the Canadian laws and regulations to avoid inconveniences. Evaluate your options, including the pros and cons, to ensure you are choosing what’s best for you.
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