A side business allows you to make some extra money that you can put away for a vacation, new car, or for a rainy day. You can start a side business doing something your passionate about, being your own boss and setting your own schedule which is why it is a popular way for people to make extra income. Popular ways that people can make money on the side are; Uber, food delivery, home renovations, or maybe even a DJ business. No matter what your side business is however, you must show your income on your tax return once tax season rolls around.
Income that is earned through a side business must be reported on the T2125 which is the Statement of Business or Professional Activities. The income that is earned from your business activities will be reported on this form to be added to your overall income. Now you may be thinking,”great I’ve got a higher income but now I have to pay taxes in a higher tax bracket” however, business income is also subject to expenses.
When you report business income on the T2125, you can also deduct eligible expenses from the income you earned so it’s possible that you may not have to jump up a whole tax bracket. Remember to keep receipts of expenses that you incur while performing duties related to earning income for your business. The CRA can request receipts for up to 6 years prior. Failure to produce receipts to prove your deductions often results in the deductions not being valid.
Common Expenses that can be deducted are:
- Vehicle Expenses
- Interest Expenses
- Advertising Expenses
- Supplies Expense
- Meals and Entertainment
Earning business income also comes with added responsibilities that are not required for employment income. Business income requires you to pay the full amount of CPP contributions required as opposed to half the amount which you pay when you are an employee. When your business income is over 30,000 you must register for GST or HST depending on the province which you are based in and begin charging for it. If you have a side business, chances are you won’t need to register for GST/HST because your income won’t be that high. However, it is always good to be aware and prepare if your income starts to pass that threshold.
The deadline to file your taxes is April 30th, however, those with business income may file their taxes on June 17, 2019. Remember that if you owe taxes, you will still have to pay them by April 30th or you will be subject to late-filing penalties.
You can find all the necessary forms to file your tax return online in our TaxTron 2018 software! Download it now to file your return online or visit a Softron Tax location to have a professional prepare your return for you!
Posted on 3 April 2019