Ever wonder how much your side hustle has earned you some coffe bucks, but also accrued income tax? If you have a day job and a side hustle, and that side hustle is earning you some money, you should set aside some money to write a check to your tax bureau next year.
To give context, Canada treats any personal income as a whole, so any side hustle will accrue income tax at my marginal tax rate. Here’s how my income and expenses look like:
2019-01-01 * Salaries paid (and income tax deducted) Income:Salaries -$2,500 Expenses:Income Tax $500 Expenses:Healthcare:Insurance $100 Asset:Checking Account $1,900 2019-01-01 * Side hustle income Income:Side Hustle -$300 Asset:Checking Account $300 2019-01-01 * Side hustle costs Expenses:Business Expenses $50 Asset:Checking Account -$50
Assume I’m to receive such side hustle income every month, and this $50 expense is one-time and fully deductible. At my marginal income rate of 20%, I will have accrued ($300 x 12 - $50) x 20% = $710 in income tax payable to the CRA (the tax bureau) next year. If you don’t have super big cash cushion, you may want to be prepared.
= /^Income:Side\ Hustle/ (Liabilities:Income Tax Payable) 0.20 = /^Income:Salaries/ (Liabilities:Income Tax Payable) 0.20 = /^Expenses:Business\ Expenses/ (Liabilities:Income Tax Payable) 0.20 = /^Expenses:Income\ Tax/ (Liabilities:Income Tax Payable) 1.00
In a nutshell, these automated transactions adds 20% to my eligible income, and removes 100% of the income tax I actually paid. A few things to decompose here:
= /expr/marks automated transactions. When a posting’s account matches the pattern defined by
expr, the postings in this automated transaction definition will be appended to the posting.
(Account)marks the posting as a virtual posting. You don’t have to balance a virtual posting, and you can remove these postings from reports with
0.20defines the ratio of the amount to the matching posting.
0.20will add 20% of the posting amount, and since income is recorded as negative, this will increase my liabiilities; when I pay tax (either through payroll deduction or by writing a cheque),
1.00adds 100% to the positive expense, decreasing my liabilities.
At the end of the year, you can simply use a quick command to estimate your income tax payable:
ledger -f file.ledger bal ^Liabilities:Income\ Tax\ Payable
Of course, make sure to consult your tax forms and an accountant if necessary.