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It seems like almost everyone has a side hustle these days. It’s a smart way to bring in some extra income, but it’s important to remember it comes with tax implications, too.
Even if your side gig isn’t your main source of income, the Canada Revenue Agency considers it business income that must be reported. So regardless of size or how many hours you put in — you’re liable for tax on that income and the same rules apply as if it was your full-time business income.
“If you have a side gig that offers any type of service or product for sale, you would be categorized as a self-employed individual and required to report it on your personal income tax return as a sole proprietor,” says Stefanie Ricchio, CPA, tax expert and spokesperson for TurboTax Canada.
The same is true for freelancers, small business owners and consultants, so whether you’re dabbling in graphic design or dog walking, setting yourself up for tax success is important and helps ensure you aren’t leaving money on the table.
“The first step is to understand which expenses and tax credits you can take advantage of for your unique situation,” says Ms. Ricchio. “This way, you can minimize your taxes payable and reinvest your time, energy and funds into living life to its fullest. Using a service like TurboTax, which offers guides and checklists can ensure that you’re not missing out on important information.”
Deductions versus credits
A tax deduction, also known as a write-off, is a business expense that can be deducted from your business income to determine how much is taxable. For example, if you made $75,000, but have $7,500 in legitimate business expenses, your taxable income decreases to $67,500. The CRA will use the $67,500 as your taxable amount and the basis to calculate your taxes payable.
Tax credits, on the other hand, are incentives offered by all levels of government that directly reduce the tax payable, both federal and provincial, that you owe. For example, for certain trades, the Apprenticeship Job Creation Tax Credit allows you to lower tax owing by a maximum of $2,000 per eligible employee.
The key is figuring out which ones apply. Expert help via a solution like TurboTax Live Full Service, where you hand your taxes off to an expert, can be a lifeline to busy side hustlers looking for the best possible tax outcome. TurboTax experts have an average of 10 years of tax experience, so you can be extra confident in the outcome.
For those who prefer a more hands-on approach, TurboTax Live Assist & Review still allows you to work with a tax expert, as they review and recommend deductions and credits, while you prepare your return yourself. What’s more, if you’re 25 or younger, you can upgrade to TurboTax Live Assist & Review at no additional cost, if filing by April 30, 2024.
“Any money that is spent to start or run a business is considered a business operating expense and is likely eligible to be claimed on a tax return as a deduction or a write-off,” says Ms. Ricchio. “Just be sure it’s actually related to your business and not just say, skincare to make sure you’re looking good as the face of the company. Remember, keeping your receipts split between business and personal expenses is essential, as you cannot apply personal expenses against your business income.”
Typically, deductible business expenses fall into one of three categories: things needed to physically run a business, things required to ensure the upkeep of a business space, and things to help you get to work, conferences or meetings.
“Self-employed individuals tend to think that they can only claim items that directly allow the sale of their products or services, or they’re worried about making a mistake,” says Ms. Ricchio. “This can lead self-employed Canadians to miss out on tax-saving opportunities. But it’s important to remember that you can claim dollars spent as a result of running your side hustle, like software (including tax prep software) fees and licenses, or equipment. Your deductions are specific to all the spending it takes to run the business, from A to Z.”
Good things to note when filing taxes
In the event that your business loses money, as is the case for many new businesses, you can apply the loss to your other income. For example, say your business lost $10,000 in 2023, but you earned $40,000 in income outside of your business. When you report that business loss, your taxable income will only be $30,000, and your taxes payable will be calculated based on that.
It’s key to keep a record of your expenses – although a lot of folks who start side hustles aren’t always sure what they can claim.
“Side giggers are categorized as self-employed, meaning they can claim the same deductions that many small businesses can, including office supplies, advertising fees and even vehicle expenses – as long as you’re actually using your vehicle for business. Just having a company logo on the side doesn’t count,” says Ms. Ricchio.
Student side-hustle tips
The same rules apply to students with side hustles.
“The key thing for students to remember is that the amount you earn impacts whether or not you stay under the basic personal amount of $15,000, which is a non-refundable tax credit,” says Ms. Ricchio. “If you surpass this amount, you’ll need to pay taxes on income above this threshold. Regardless, students with side hustles should still file as even business losses can be applied to other income earned.”
It’s also important to note that there are other credits and deductions you may be able to claim as a student unrelated to a side gig. This includes tuition tax credits, moving expenses and interest paid on student loans.
Smart support for side hustlers
It can be hard to keep track of all the relevant deductions and credits, so using a tax solution like TurboTax is something to consider.
TurboTax Self-Employed suggests credits and deductions that are personalized to you and your line of work so you don’t miss any write-offs. You may also want to consider working with a tax expert for personalized guidance to help you achieve the best tax outcome.
Whether you’re making moves as an independent contractor, freelancer or small business owner, it’s worth it to take advantage of solutions that help you accurately claim your self-employed income and expenses. You get to focus on your side hustle, with the knowledge and support that TurboTax will help you get the best possible tax outcome.
Want a curated list of recommended articles to help you make the most of this year’s tax filing? Take this quiz for tailored tax tips.
Advertising feature produced by Globe Content Studio with TurboTax. The Globe’s editorial department was not involved.