With all the extra income, I would have been crazy to declare just my earnings with the annual tax return - I needed to declare my expenses too as I was effectively running a company on the side so I founded my first business entity which was a sole proprietorship. A sole proprietorship enables one to declare not only their earnings but also their expenses too. For example, If I use 25% of my home as an office, I can declare 25% of my rent/mortgage.