E Point Perfect

Self-employed? Here’s how to file taxes for a side hustle

Nathalie Hatter is one of those with a new side hustle. A corporate travel executive who planned company getaways, she watched as her career stalled in March 2020. “As soon as Canada advised Canadians not to travel, that’s when companies had to cancel their programs,” says Hatter, who lives in Oakville, Ont.

Hatter has elderly parents, so she needed a new job that would be socially distanced and flexible—like dogwalking. She ordered business cards and handed them out to dog owners in her neighbourhood. Soon, Hatter was relying on her earlier chef’s training to bake artisanal dog treats, which she sold at weekend farmers’ markets. Pivot Dog Biscuits was born. “I was selling out every weekend,” she says.

Now, two years on, Hatter has returned to working as a travel consultant, with a very successful dog treat business on the side. She’s currently gearing up to pay taxes by the federal tax deadline of April 30. (It falls on a Saturday this year, so the Canada Revenue Agency says “on or before May 2” will be considered on time.) The filing deadline for self-employed people (and their spouses) is June 15, but any taxes owing are still due April 30 (or May 2, in 2022). “I like to get my taxes in ahead of the curve,” Hatter says.

Having a side business can bring in a lot of extra income. It’s critical to track your business expenses and keep the receipts, so you can claim tax deductions. More considerations if you’re newly self-employed: Your extra income could push you into a higher tax bracket, lead the Canada Revenue Agency (CRA) to ask that you pay taxes in installments and/or require you to register for and start charging GST/HST (more on that below).

These changes might be more than you bargained for when you launched your side venture, but planning ahead, maximizing deductions and reducing your overall income can ensure you maximize your profits while meeting your tax obligations. Here’s how to make that happen.

Is your side hustle taxable?

Absolutely, unless your side hustle brings in just a couple hundred dollars a year (so it’s more of a hobby than a business). Beyond that, any business income is taxable, says Dean Paley, a Chartered Professional Accountant in Burlington, Ont.

To find out how much tax you owe, plug your income into an online tax calculator—Paley recommends Ernst and Young’s. Then add about 10% for Canada Pension Plan (CPP) or Québec Pension Plan (QPP) contributions. If your net self-employment income plus pensionable employment income is over $3,500, you must begin contributing to CPP/QPP—and, unlike salaried employees, you must pay both the employer and employee portions for CPP.

Sole proprietors—individuals who own a business that is not incorporated—have to report all business income on their personal income taxes using Form T2125, Statement of Business or Professional Activities. Even if the business fails to make a profit, you have to declare a loss, says Paley. “A loss gets deducted against any other income you made in that year,” he says.

Source link

Related posts

Advanced Couch Potato Portfolios – MoneySense

Can you avoid probate taxes on TFSAs?

Making sense of the markets this week: January 15, 2023

Do you pay withholding tax on U.S. ETFs?

Are fees payable for acting as a power of attorney in Ontario?

“COVID made me do it”: Taking stock of pandemic money decisions