{"id":5616,"date":"2018-02-07T18:28:17","date_gmt":"2018-02-07T23:28:17","guid":{"rendered":"https:\/\/goday.ca\/blog\/?p=5616"},"modified":"2021-09-30T10:58:38","modified_gmt":"2021-09-30T14:58:38","slug":"freelancer-should-keep-in-mind-financially","status":"publish","type":"post","link":"https:\/\/goday.ca\/blog\/freelancer-should-keep-in-mind-financially\/","title":{"rendered":"Five Things Every Freelancer Should Keep In Mind Financially"},"content":{"rendered":"

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Whether you\u2019re doing consulting on the weekend, cutting lawns for your neighbours for extra cash, teaching yoga classes outside of your 9-5, or selling your arts and crafts on Etsy, you\u2019re not alone. In the last decade we\u2019ve seen a steady increase of the \u201cside-hustle\u201d or \u201cgig\u201d economy. People are looking for ways to increase their income, and also pursue passions and side-projects that they always wanted to pursue. And it\u2019s not just a few people, In <\/span>a study<\/span><\/a> done last year by <\/span>Bankrate<\/span><\/a> it\u2019s estimated that more than 44 million Americans have a side-hustle. <\/span><\/p>\n

While part-time work isn\u2019t anything new to the employment circuit, the side-hustle has become popular most notably for the millennial generation. Whether they\u2019re chasing their passion, or just trying to gain some extra money to pay off student debt, or the increasing cost of living, \u201cside-hustle\u201d has become a buzzword across North America. <\/span><\/p>\n

So why is this new way of work so popular amongst <\/span>young<\/span><\/i> professionals in particularly? It\u2019s no surprise that millennials have been known as the generation to shake up the workplace. They aren\u2019t the traditional 9-5\u2019ers that stick to the same job for 40 years and retire. They don\u2019t believe sitting in cubicles will make them creative or get the job done better or faster, and they definitely are asking and wanting more out of their jobs. Older generations can frown at them as much as they want, but this generation is the one who is leading the change in what was once seen as the traditional (and now dated) workplace.<\/span>
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\n<\/span>Side-hustles can have all sorts of benefits for professionals, but we hear stories all the time about people starting a side business or taking on work outside of their regular 9-5, who don\u2019t really know how they should be managing this extra income. Unfortunately for them, it often takes getting hit during <\/span>tax season<\/span><\/a> with a hefty bill they need to pay back to the <\/span>Canadian Revenue Agency (CRA).<\/span><\/a><\/p>\n

Here\u2019s the thing, a lot of the time the income that is coming in from side work is not being taxed, and just like any income from a regular job, you need to claim it when you do your taxes every year. Since you likely haven\u2019t been paying a percentage of taxes for your additional earnings, this is when you\u2019re going to have to pay them. Often times people get caught off guard with this, and we don\u2019t blame them, this is something that you don\u2019t learn in school and given the gig economy has just recently exploded, many people don\u2019t know how to properly be prepared for tax season when it comes to their side-hustle. That\u2019s where we come in with our advice to make sure you\u2019re on the right track and don\u2019t get hit by a hefty bill to pay next tax season.<\/span><\/p>\n

1) Save your receipts and invoices <\/b><\/h3>\n

Keep track of all your receipts and invoices in an organized fashion. Save every single transaction that\u2019s made throughout the year in regards to your business or side-hustle. We mean everything. So for example, if you are a yoga instructor and had to buy yoga props in order to do your job, save those recipes. If you\u2019re a freelancer and had to take a new client out for coffee and you paid, save those receipts. <\/span>
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\n<\/span>The CRA requires you to provide receipts and invoices for anything you are claiming on your taxes and from what you\u2019ll see below, there\u2019s actually quite a few things you can claim that you may have never thought about previously. But if you don\u2019t have receipts and invoices to prove those purchases and get audited, you will need to provide documentation to back up what you claimed.<\/span><\/p>\n

TIP! <\/b>Keep them organized! Receipts and invoices can build up quick when you\u2019re keeping them for an entire year, and if you start doing your taxes with a box of receipts just thrown in, you\u2019ll be frustrated, overwhelmed and may even miss some important details. Using services like <\/span>PayPal<\/span><\/a> for any invoicing, and apps like <\/span>Expensify<\/span><\/a>, can help you keep on top of things throughout the year.<\/span>
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\n<\/b>2) Budget for tax season<\/b><\/h3>\n

This is one of the most important things you can do for yourself so you aren\u2019t caught off guard when you receive your tax return. Budgeting for tax season can help you build a cushion that\u2019ll make biting the bullet and having to pay back the CRA a lot less painful. <\/span>Financial experts<\/span><\/a> suggest that you set aside around 25-30% of every freelance paycheque you earn. <\/span><\/p>\n

The easiest way to do this is to set up a separate account that you don\u2019t have easy access to and automatically deposit the 25-30% each time you are paid. It sucks at the time, but it\u2019s no different than the taxes that are coming off your regular paycheques. <\/span><\/p>\n

TIP! <\/b>If you are making over <\/span>$30,000<\/span><\/a> in your side-hustle in a year, you\u2019ll need to <\/span>register <\/span>for GST\/HST. <\/span><\/p>\n

3) Start and contribute to your RRSP <\/b><\/h3>\n

It\u2019s not only great to contribute to a Registered Retirement Savings Plan (RRSP) as soon as you can to start saving for your retirement or future investments like a house, but contributing to an RRSP can also save you from having to pay a ton for your side-hustle when it\u2019s time to do your taxes. The benefit of contributing to your RRSP is that it\u2019ll feel a lot better putting money into an account that is all yours, versus giving away your money to the CRA!<\/span><\/p>\n

It can be challenging to determine what to contribute to your RRSP because if you\u2019re nowhere near retiring it\u2019s hard to envision what your salary will be pre-retirement and how much you\u2019d want to have in that account when you retire. However, contributing the max you are capable of is a great start, and you can continue to increase that number as you go through your career and make more money. Keep in mind that the maximum amount of money you can put into your RRSP each year is <\/span>18%<\/span><\/a> of your pre-tax earned income.<\/span><\/p>\n

Your contributions to your RRSP will be claimed on your income tax and in turn, this will help lower what you owe on your taxes. Even if you don\u2019t have a side-hustle, this is a tip that can be valuable for everyone, especially who are at risk at having to owe the CRA money during tax season.<\/span><\/p>\n

4) Look at deductions <\/b>
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As a freelancer or someone who is self-employed even just in a side-hustle capacity, there are several things that you can deduct and claim on your taxes. Some things that you can consider deducting are: <\/span><\/p>\n