Preparing Financially to Join the Gig Economy
There's no question the Covid-19 pandemic has wreaked havoc on the Canadian economy and workforce. As a result, many Canadians became unemployed, took a pay cut, or reduced their hours. To make ends meet, some workers have joined the gig economy. If you're considering taking the plunge into self-employment, first take the time to consider the financial implications and obligations. It is also critical to understand what is required for taxes and expectations from Revenue Canada.
Do Your Research
Before you dive into your new venture, find out what type of income you are likely to make and set reasonable expectations. Research the industry to determine whether people typically pay for your service by the project or by the hour and create a rate card. A rate card will make you look more professional and keep prices consistent, so you are not getting sucked into low-paying jobs or pricing yourself out of a job. Understanding the gig you want to break into before starting will help determine if this is the right fit for you.
Creative work like writing, graphic design or website building requires minimal startup costs, namely a computer and preferably a proper workspace with a desk. You may also want to invest in a website to promote your business and purchase any tech supplies or online subscriptions that support your day-to-day operations. Suppose you're providing a service like painting houses. In that case, you may want to invest in some business cards, lawn signs and painting supplies. No matter what gig you are planning to start, be sure to calculate your startup costs and ensure this is a business you can afford to launch before you start booking clients. Be reasonable about what supplies you need to start and plan to grow your tools after your first few jobs.
Track Income and Expenses
You can track most side gigs easily with a simple spreadsheet or free invoice software. However, it's essential to record your jobs and income so you can set aside money for tax time at the end of the year. For tax purposes, you will need to track all income earned, details about how, when and where you earned this income, and any expenses incurred as a result (supported by receipts and invoices). It's easy to forget or dismiss small jobs, but these can add up over time. Tracking expenses can also help you determine what to write off on your taxes, which can help reduce your income, so you owe less. Also, be aware that if you earn more than $30,000 in four calendar quarters, you will be required to collect and pay GST/HST on all taxable sales.
Depending on your business, you may be surprised to learn what you can write off. For example, if you're a freelance writer, you can write off a portion of your home that you use for an office. You can also write off your cell phone bill, part of your internet bill, heating and electricity, mortgage and any new office expenses like a new laptop or office chair. It may also be time to have an accountant do your taxes to maximize your return. An accountant can also help you determine how much money to put aside each year for income tax, so you are not shocked when tax season rolls around.