Tax season preparation starts well before February. For Canadian freelancers, the goal is arriving at your T1 filing date (June 15) with organized books that let you or your accountant complete the T2125 accurately in one session, not three. Here is how to do it.
Step 1: Close and Reconcile December
By January 15, complete your December bookkeeping exactly as you would any other month:
- Record all December client payments received
- Enter all December expenses with receipts attached
- Reconcile your December bank statement to your accounting software
- Confirm your year-end bank balance matches your accounting software balance exactly
A clean December close is the foundation for everything that follows. Do not start tax preparation before this is complete.
Step 2: Annual Revenue Reconciliation
Generate a year-to-date profit and loss report from your accounting software. Then verify:
- Total gross revenue matches the sum of all invoices you issued and payments you received in 2025
- If registered for GST/HST: gross revenue in your accounting software should not include GST/HST collected — verify this
- USD revenue is converted to CAD at the correct exchange rates
Step 3: Expense Review and Adjustment
Review each expense category and check for:
- Missing receipts: Any expense without documentation should be addressed — either locate the receipt or note the rationale
- Meals and entertainment: Confirm only 50% of eligible meals are recorded (some software tracks full amounts and applies 50% automatically — others require you to enter only 50%)
- Mixed-use expenses: Apply business-use percentages to phone, internet, and vehicle before your year-end total
- Home office: Calculate your square footage percentage and apply it to your eligible home costs for the year
- CCA: List all capital assets purchased during the year with their costs, CCA class, and business-use percentage
Step 4: T2125 Export or Summary
From your accounting software, generate an income and expense report organized by category. This is the input for your T2125:
| T2125 Section | What to Pull from Books |
|---|---|
| Part 2 — Gross Income | Total revenue (excluding GST/HST) |
| Part 4 — Expenses | Totals by category (advertising, professional fees, etc.) |
| Part 7 — Home office | Eligible home costs × business-use % (calculated separately) |
| Part 8 — CCA | Prior year UCC, new additions, current year rate |
Step 5: GST/HST Year-End
If you are an annual GST/HST filer:
- Generate your GST/HST tax summary report from your accounting software
- Verify total HST collected matches your invoice records
- Verify total ITCs match your expense records with tax paid
- Note the net amount owing or refundable — this is your April 30 GST/HST payment
- File the annual GST/HST return by June 15 through CRA My Business Account
Step 6: Accountant Handoff (If Using a CPA)
If you use a CPA for your T1 filing, deliver:
- Profit and loss report from your accounting software (full year)
- Summary of home office expenses and percentage calculation
- Vehicle mileage logbook and total vehicle costs
- List of capital assets purchased with original costs
- RRSP contribution receipts (for contributions up to March 3, 2026)
- All other T slips (T4, T5) received
- Access to your accounting software account (most CPAs prefer this to exports)
Frequently Asked Questions
When should I start tax season preparation?
January 1 — the December close is your starting point. February is when T slips start arriving from employers and financial institutions. Most organized freelancers have their books ready to file by March 1, giving them a cushion before the April 30 payment deadline and the June 15 filing deadline.
What if I discover missing income or unclaimed expenses during tax preparation?
Add missing income immediately (under-reporting is a CRA risk). For unclaimed expenses, add them to your books for the correct year and claim them on your return — it is not too late if you have not filed yet. If you have already filed and discover a missed deduction, file an adjustment (T1-ADJ or through CRA My Account within 10 years).
How do I handle a T4A from a client I didn’t know was issuing one?
T4A-NEC (non-employment compensation) from clients who paid you $500 or more should match your invoice records. If the T4A amount differs from what you invoiced, contact the client to reconcile before filing. If the T4A is correct but you didn’t record some income, add it to your T2125 income. Never leave T4A amounts off your return — the CRA cross-references them automatically.