Navigating Tax Mistakes: Essential Tips for Gen Z Side Hustlers

For many in Generation Z, side hustles are a way to make ends meet, save for future expenses, or just have a little extra cash. From ride-sharing and online sales to freelance work, these gigs can be a financial lifeline. However, when it comes to taxes, it’s crucial to avoid common mistakes that could cost you more than you bargained for. Here are some tips to keep your side hustle taxes in check, ensuring you make the most of deductions and stay on the right side of the tax laws. 

Understanding Your Tax Obligations 

Income from any side job needs to be reported to the tax authorities, much like traditional employment income. This includes earnings from diverse activities such as weekend DJ gigs or selling homemade goods at local markets. Essentially, side hustle income is treated as self-employed earnings, which means it’s subject to taxation and must be reported accurately to avoid penalties. 

Reporting Side Hustle Income 

To report your side hustle income, you’ll need to complete Form T2125, part of your general income tax return. This form gathers details about your side hustle’s income and expenses, helping you calculate your net income or loss. This figure then gets added to your other income sources to determine your overall tax liability. 

Common Tax Mistakes to Avoid:

Overlooking Deductions 

Maximizing deductions is key to reducing your taxable income from side hustles. Common deductible expenses include office supplies, equipment, and advertising costs. For those working from home, a portion of housing expenses like utilities, insurance, and rent may also be deductible. However, remember that some expenses, such as meals and entertainment, are only partially deductible, and capital expenses must be deducted over several years. 

Failing to Save for Taxes 

A major mistake is not setting aside money for taxes, which can lead to a painful tax bill come tax season. To avoid this, calculate your expected tax liability based on your income and save a portion of your side hustle earnings accordingly. This proactive approach ensures you’re prepared to meet your tax obligations without stress. 

Neglecting to Report Past Income 

If you’ve previously overlooked reporting side hustle income, it’s crucial to correct this by amending past tax returns. This can be done online or by mail, potentially helping you avoid penalties for unreported income. 

Ignoring GST/HST Registration 

For side hustlers earning over $30,000 annually, registering for and charging GST/HST is mandatory. Even if you earn less, voluntary registration can be beneficial, allowing you to claim credits for the GST/HST paid on business-related purchases. 

Key Takeaways 

• Declare and pay taxes on side hustle income using the appropriate forms. 
• Deduct legitimate business expenses to lower your taxable income. 
• Regularly save a portion of your earnings for tax payments to avoid year-end surprises. 
• Correct any oversight in reporting past side hustle income to avoid penalties. 
• Consider GST/HST registration requirements and benefits, depending on your earnings. 

By following these guidelines, you can manage your side hustle taxes efficiently, ensuring you keep more of your hard-earned money while staying compliant with tax laws.