There’s no better feeling than being your own boss, setting your own hours, and charging the rate you deserve.
That is until you snap back to reality after the intricacies of making a living as a self-employed individual hit you head-on.
Even if your side hustle is small and just starting out, the same pitfalls apply. Let’s see what they are and how we can avoid them.
Not setting aside enough for taxes
If you work for a company as an employee as your sole source of income, tax time is relatively simple. You get a T4 slip and file that with the CRA. Your owed income tax, EI, and CPP contributions are deducted at the source.
Not so if you have a side hustle. You’re 100% responsible for withholding and paying the required income tax and CPP come filing time. Didn’t set enough aside and spent it all? The CRA won’t be happy about that.
Oh, and don’t forget about charging and remitting provincial sales tax (PST), government sales tax (GST), and/or harmonized sales tax (HST) if you’re providing services and products!
Not saving on taxes
When you run a side hustle, you’ll likely incur expenses starting up and carrying out your business, whether you’re freelance writing, dropshipping, tutoring, etc. However, not many people realize this, especially if it’s a side hustle.
Most people running a side hustle already pay these costs for personal use, so they simply forget that they’re also using it for business now. The lesson here is to keep your invoices for what you pay and make reasonable and proportionate claims.
You can deduct the cost of things such as office supplies, phone bills, internet fees, use of your home (based on how much you use as an office), property tax, rent, utilities, mortgage interest, car maintenance, etc. There are a lot of categories here, so staying appraised can save you big bucks.
Monetizing a hobby
Everyone thinks that getting paid to do what they love is a dream come true, but reality can be very different. Doing something out of passion versus for someone else to get paid are two very different feelings.
The former can re-energize you or help you relax and feel happy after a long day. The latter can be a slog and feel like a loss of freedom because you’re now pawning your passion off to someone else for money.
If you have a hobby that could be monetized into a side hustle, think it over long and hard before you take that plunge. You may find that you no longer enjoy what made it special after you’ve gone into business.
