Earning Side-Business Income? 4 Steps to Get Your Taxes & Finances Done Right

Wait, that side hustle cash is taxable? Whether you’re freelancing, running a passion project or making a go as a solopreneur, if you’re earning extra income (even if it’s just a little), you need to declare it to the CRA. The good news? Managing your money and filing taxes as a solopreneur isn’t that complicated – and we demystify the process here.

Step 1: Get organized

As you get started in business, you’ll set yourself up for success when you’re organized with your money and your taxes right out of the gate. Having good processes, tools and support can help put your business on the right track – and keep it there over the long term. Here are some simple basics to focus on:

Your taxes

One of your first steps: Set up a business account number with the CRA, also called a Business Number (you’ll often see it referred to as a BN). If you believe you will earn $30,000 or more in business income in a year, you’ll also need to get a GST/HST account. Take a look at our tax filing tips for more about setting up this account with the CRA and filing a GST/HST return.

Keep in mind, if you’re close to the $30,000 threshold, or believe you will be soon, it’s worth setting up this account now so you don’t have to worry about it later.

Read full article to Ultimate Guide to Organizing your Side-Hustle

Your business registration

If you operate as a sole proprietorship under your own legal name  (without any additional words) – and your province or territory doesn’t require it – registering your business is not a must-do. But it’s not difficult, and registering gives you the freedom to choose a business name (other than your own). Plus, you’ll need to register if you end up hiring employees down the road.

Getting paid

As much as you may love working on your new business, you want to get paid, right? But you don’t want the administration of it to take up valuable time. Having an efficient invoicing system can make getting paid super easy, and the right invoicing/accounting software can do a lot of the work for you.

A business banking account

A bank account dedicated to your business can go a long way to keeping your money and taxes organized. Here’s how:

• You can easily track payments coming in from clients (without sifting through the transactions in your personal account)

• When your customers can pay you online, through direct deposit or Interac e-Transfer via your business account in the name of your business, you’ll appear more professional

• If your customers pay by cheque, you can use mobile cheque deposit to instantly deposit the money in your business account

• You can pay for business costs out of your business account, keeping things tidy and easy to manage come tax time

5 min read: Business Banking: The Benefits of Separating Business From Personal

Step 2: Master your tax deductions and expense tracking

One of the great perks of operating a business is that you may be able to deduct business-related expenses from your income, reducing the amount of tax you pay. Understanding what qualifies as a tax deduction (and what doesn’t) and getting proficient with your expense tracking can help you keep more of your money for yourself.

Common deductions for small businesses — and what doesn’t count!

Some money you spend running your business is considered a business expense and you can claim it on your tax return as a deduction. Here are some common deductions:

• Accounting and tax software

• Advertising fees

• Business supplies

• Home office and home office-related expenses such as utilities, rent or property taxes

• Meals, entertainment and travel

• Transportation, including your car

• Bank charges — this means the cost of your business bank account may be written off against your income 

Read full article: Top Tax Deductions For Freelancers and Self-Employed

Step 3: Know the rules of reporting your business income

If you provide a product or service with the intention of earning a profit, you have self-employed income. This includes money earned from a side hustle, freelance work, a small business or contract job. It doesn’t matter if you have a day job and earn a salary or hourly wage, the money you earn from your business still counts as business income.

Here are some rules to know:

• You must report all income

  If your business is not incorporated, you can report the money you earn through your business as income on your personal income tax return. If you also earned income as an employee, you can include both sets of income on the same return.

  If you incorporated your side business, your taxes need to be filed separately.

• You need to charge GST/HST if you earned $30,000 or more

  In addition to filing your income taxes, you may be required to charge your customers GST/HST. This rule applies if you begin earning more than $30,000 in income within the past calendar year or four consecutive quarters.

  If you earn $30,000+ in a year and you don’t collect GST/HST from your customers, you will either have to go back to them and collect tax retroactively (who wants to do that?), or you’ll have to pay it from  your own pocket. So, if you’re getting close to the $30,000 mark, now and register for that GST/HST account sooner than later.

• You must file a tax return

  Feel a little lost, or not sure you managed your taxes correctly? You still need to file a tax return by the deadline (April 30^th if you owe a balance, June 15^th if you don’t). Once you file, you can contact the CRA for help if needed. If you don’t file, you don’t have the same path for assistance.

Our tax filing article can help fill you in on the process of filing a tax return as a freelancer, solopreneur or side-hustler.

Step 4: Set aside money for tax payments and EI/ CPP obligations

Now that you know side hustle income comes with taxes, here’s the next step: You’ll want to set aside a portion of what you earn to cover your tax responsibilities. A good rule of thumb is to set aside 25-30% of your business income for taxes.

Let’s say you’re a freelance writer in Ontario and earned $50,000 in business revenue. You spent $10,000 on business expenses, which leaves you with $40,000 in earnings. For income earned in 2024, your average tax rate would be 22.5%, and you should set aside $8,899 to pay your federal and provincial taxes and your CPP premiums.

It’s a smart idea to open a separate bank account for your tax obligations, to prevent you from accidentally spending money earmarked for taxes. Like most small businesses making more than $30,000 in income, you will need to remit your HST/GST in quarterly installments; which means you need the funds readily available to pay your tax obligations on time.

As you start earning business income, it’s important to get your money, your taxes and your tracking in order. This way you can devote more time to your business, keep more of your money, and your business can grow seamlessly.