How to File Income Tax For Your Side Business

by Desiree Nair

Income Tax

How to File Income Tax For Your Side Business

Your income isn’t just what’s on your payslip. It’s also however much you’ve made in profit from your own efforts – from renting out property, working part-time, or any entrepreneurial efforts you participate in. This is important to remember in tax season, especially if you have a form of side income that’s not related to your monthly salary – because you have to declare it. This includes work done part-time, or in a freelance capacity.

Which Form Should You Use For This?

The BE form is the income tax return form used by those who do not carry a business. However, you may still be able to declare your side income using this form, depending on the nature of your income source.

Besides income from employment, the BE form allows you to declare income from rents, interest, discounts, royalties, premiums, pensions, annuities, other periodical payments, and other gains or profits. "Other gains or profits" is defined as payments received for part-time or occasional broadcasting, lecturing, writing, and so forth. So, if your side income falls under any of these categories, you can declare it on your BE form as it doesn’t technically count as "carrying on a business".

However, if your side income resembles more of a business enterprise (and this includes e-commerce activities like running a website, having an online store, and so on) rather than the occasional freelancing, you would have to use Form B for individuals who are carrying on business activities.

Registering A Business

It’s a simple process where you can have your business licence in your hand a mere hour after payment has been made.

The easiest type of company to register is a sole proprietorship which only costs RM30 if you use your own name (as per your Identification Card). If you choose to use a trade name or have a partner that you’d like to register your business with then the fee will be RM60. If you’re still unsure which type of business you should register as, we recommend checking out our article on the different types of business entities in Malaysia.

Once you’ve registered your side business, it will be recorded on Form B; both your employment and business income can be captured on this form. In this form, you’ll be able to claim for business expenses that you wouldn’t otherwise have been able to without registering your business. For instance, you may offset expenses such as interests on a business loan and repairs on vehicles used for business purposes – all of which you cannot do without registering as a business beforehand.

Remember to take note of the following:

  • You must also retain documents like your statements from payment gateways, invoices and purchase receipts, income statement from ad companies (if you’re involved with affiliate marketing) and sales confirmations, etc in good condition for 7 years.
  • You may claim for web maintenance fees, domain renewal, web consultant fees, internet fees and equipment, server rental as well as utilities, etc.
  • You are not allowed to claim for personal, domestic utilities like your water bill, for example.

What You Should Never Do When It Comes To Your Side Business

While it’s tempting to not want to declare your side income or to downplay your revenues, you can incur the wrath of the Inland Revenue Board of Malaysia if you are found out. Think of hefty fines (up to RM20,000), imprisonment and being barred from leaving the country. So it’s best to be upfront about your taxes, however, staying out of trouble with the authorities isn’t your only incentive to fully declare income.

In fact, showing healthy earnings and responsible tax payments is proof of your creditworthiness. But even as banks differ with credit-granting criteria, this might help you obtain better credit rates, access to more credit, and improved chances for loan approvals.

Need to find out more before you file your taxes for the year? Have a look through our other income tax-related articles here