Got a side hustle? Three things you need to know before filing taxes as a self-employed boss
In the wonderful world of keeping up with Joneses (or maybe the Kardashian’s), many Canadians are pursuing their entrepreneurial dreams and starting side hustles. With so many tips and tricks out there on how to best go about these second jobs, many of us fail to realize we’ll have to report to the taxman about our endeavours.
But fear not side hustlers, your tax friends at H&R Block are here to give you the low down on what you may need to do when it comes to your taxes.
From sharing homes to cars, there’s a way to cash in.
If your side hustle includes using apps like Uber or Airbnb, you’re likely part of the shared economy and therefore self-employed. As such, income earned in a self-employed capacity needs to be reported on Form T2125 Statement of Business or Professional Activities as it’s taxable. So, while your profit from those rides doesn’t necessarily land on your T4, you still have to report any income earned to the CRA.
Self-employed taxpayers may claim any reasonable expenses incurred to earn business income, such as deducting service fees or the costs of operating your vehicle while using it for business purposes, cleaning your home after a guest stay or the cost of supplies. It doesn’t include costs that are not associated with the business, such as your lunches – unless they’re with a potential new client.
Getting paid in stacks of cash. Sounds cool; but do it the right way.
Who doesn’t like holding a wad of cash in their hand and pretending they just hit the jackpot?
The CRA wants to know about all your income, so be sure to work with those who can provide proper tax forms and report all income (even if you received it in cash).
Speaking of stacks of cash: if your part time job or contract work offers to pay you under the table, you might start thinking, “hey, this is great! I don’t need to report this income, so I can keep it all and not move up a tax bracket.” We’d just like to give you the heads up that getting paid under the table is illegal! So make sure those stacks come with a paper trail.
FYI – you’re not usually fooling the CRA. They expect people to under report tips and so they calculate a percentage of your wage as assumed tips so even if you fail to report that amount correctly – or report less than you should – they will still allocate a certain percentage of tips to you. Also, reviews of tip income by the CRA are not uncommon, so it’s best to report your tips accurately.
Buy cheap, sell high, right?
If you moonlight as a house flipper you may need to be reporting any income gained! Your flipped home renovations are tax exempt if your home is currently considered your primary residence. However, you may no longer be tax exempt if you change your primary residence often and with multiple locations at a time, and may therefore need to report incomes and losses to the CRA.
For many it’s a great gig to purchase a home at a low rate, renovate and then resell at (hopefully) a higher price. However, it’s important to keep in mind that because these homes are not considered your primary residence, the capital gains could be up to 100% taxable.
So, whether you’re driving friendly strangers around the city, waiting tables on the weekends, flipping homes, many things involving cash need to be reported to the CRA. All these money-making side hustles are a great idea for adding cash to your pocket, but you need to keep track of all taxable income. If you have questions on what to do about your side hustle, H&R Block can answer those for you. Visit an office near you, do it yourself or opt for our Expert Review program to ensure you’re getting what you’re owed.