How to File Your Taxes When You Have Income and a Side Business

Got a regular job and running a small business at once? Here’s a quick overview on how to file your taxes when you have income and a side business.

Over 90% of businesses opened each year are small businesses (SMEs). If your small business makes it past the first year, filing your taxes becomes a little more complicated. Here are some useful tips on how to file your taxes when you have a regular income and a side business.

Factor in Deductions and Credits

Having a side gig makes you a business owner, which comes with some perks. When filing your taxes, remember to factor in expenses related to your business. For example, you probably travel back and forth visiting clients, offering services, purchasing or delivering products, and so on. You may also spend money advertising, or buying supplies, and paying for utilities for your office.

If it’s related to your side business, then you are eligible for tax pardons, otherwise known as deductions or credits. Remember to save all your receipts as all these claims are subject to verification by the Canada Revenue Agency (CRA).

Here are some additional resources for SME deductions:

Canadian Small Business Tax Credits: 3 Things You Can Write Off

What Are the Canadian Business Expense Rules for Your Vehicle?

CRA-Approved Business Travel Tax Deductions You Need to Declare

Deducting Expenses for Family Employees: 3 Questions to Ask

Know Your Tax Bracket

Now that you’re earning additional income from your side business, your tax bracket may change. Note that a higher tax bracket doesn’t automatically mean that you will have to pay significantly higher taxes. This because you are eligible for over 400 tax credits and deductions as a business owner. What’s more, personal taxes reduce if you have funds you received as donations or if you’re contributing to a retirement savings plan.

Federal income tax brackets for 2019, not including provincial taxes:

  • 15% on the first $47,630 of taxable income, +
  • 5% on the portion of taxable income over 47,630 up to $95,259, +
  • 26% on the portion of taxable income over $95,259 up to $147,667, +
  • 29% on the portion of taxable income over 147,667 up to $210,371, +
  • 33% of taxable income over $210,371.

Factor in the Canada Pension Plan

As required by law, all self-employed citizens in Canada should contribute to the Canada Pension Plan (CPP). As an employee without a side job, you are only required to contribute 5.1% of your salary to CPP; your employer contributes the remaining half of 5.1% for you. In total, you’ll be sending 10.2% of your income to the CPP (all rate as of 2019).

As a business owner, you’ll be responsible for the full amount, since you are both employer and employee.

The good news is that there’s a cap. You only have to pay into CPP for the first $57,400 you earn (as of 2019). If your regular employer is already deducting CPP and you reach the cap, you won’t have to pay extra on your self-employment earnings.

Overall, filing your taxes when you have income and a side business adds a level of complexity to your return that requires some knowledge and attention to detail. If you feel confident enough to file your taxes, we are here to help verify, review, and ascertain that you’ve done it right. Our tax planning services will ensure that you are reducing your tax liability and support you, should the CRA come calling.

E&E Professional Accountants has years of experience in assisting businesses with their accounting needs. We are founded and managed by an experienced corporate auditor and a former CRA tax auditor. Feel free to contact us for assistance with all your accounting and bookkeeping needs.

Hussein Ebrahimjee

Having worked for the Canada Revenue Agency (CRA) as a tax auditor and as Manager at a public accounting firm, Hussein brings along a wealth of experience in Tax planning, Compliance and public accounting.
Hussein Ebrahimjee