Hey there, side hustler! Ok, you have the day job, you have the hustle, and
probably a couple of ‘shabby gigs’ you would not mind hiding. But now it is
the time when every side-earning person starts worrying and gets the
feeling that he is living one side life of numbers and tax. Oh, don’t worry,
I’m here to help you keep track of your side hustle income, claim all of your
deductions and ensure that you get to keep as much of that well-earned
money as possible.
Step 1: Recording of income (s) earned (also referred to as: I know my grind).
Before we go further, let me emphasize that you really should know what
kind of money you’re making from your side hustle. From delivering food
items to people, selling art on Etsy or coding websites for people, every
penny matters most, especially when counting to the taxman. Here’s how
you can make it easier:
Simple Tracker: You don’t have to stare at the screen with what resembles a
roadmap of how the NASA control center would be laid out. Daily use apps
like Google Sheets, Notion, or using specific applications such as
QuickBooks Self-Employed or Wave are perfect for tracking income. The
account can be maintained with a basic table that has date, client/job,
amount, and the note column if it is paid or not.
Specific: Keep side hustle revenue and your personal expenses in different
accounts. Create a new account in the bank to be able to distinguish
between income and expenditure. And the number of notifications that
come through is filtered out between Venmo transactions and brunch bills
alike.
Eliminate as much manual data input as possible. If your side hustle goes
through sites, link those apps with the income tracking app. In this way, all
the money you earn is documented without you having to do anything at
all.
Step 2: Comprehending Your Tax Demands (Dismantling the Tax Authority)
The fifth reality is that there is no underestimating the taxman in the world
of side hustles and all the notable benefits that accompany them. Here’s a
quick breakdown:
Income Tax: From the very first dollar you earn, the government takes a
share from the revenue; in some countries, Uncle Sam, in others, Uncle Tax
Authority. Because your side hustle income is often not subjected to tax
deductions, you may need to set aside about 20 to 30% of your earnings for
tax purposes.
Self-Employment Tax: Fun fact: autonomous work, well, it means that
loafing on the job comes at an added price of about 15.3 % in the U.S. This
encompasses social security and medical insurance. You have half of these
taxes paid by your employer and, as a freelancer, the entire amount is on
you. Well, if you’re clearing some good bucks on the side, brace yourself to
shelve out some cash.
Estimated Quarterly Payments: If you’re earning massive amounts of
money from your side hustle, then he or she is required to pay estimated
taxes every quarterly. Not having these could result in penalties—and
believe us, no one wants an unwelcome tax demand in the middle of April.
Step 3: How to Track Your Deductions Like a Boss
This is the saving money part. When this is done, you spend or save money
with discretion. Deductions bring your taxable income down, so let’s
discuss what expenses are okay to claim without an issue.
Office at home—this is allowed even if it is just a small workplace you
created for your side business. There are two ways to calculate this:
Simplified Method: You get a $5 credit for each unit up to 300 of them,
that is, for 3000 sq ft.
Actual Expenses Method: Assess how much of the home is dedicated to
work and apply the rate to rents, utilities, as well as other home costs.
Example: If your 10×10 desk setup in a 1000-square-foot apartment costs
$500/month in rent, you could only take off about 10% of your rent, or
$50, on your taxes. Ka-ching!
Supplies and Equipment Have you bought a new laptop for use in your side
business? That’s a deductible expense! That includes pens, notebooks,
specialized software, etc. Just ensure they are used mainly for business.
Marketing and Ads: This is an obvious one capital that any money spent on
promoting your hustle is tax deductible. Regardless of whether you are
receiving affirmation with a paid Instagram ad for your art page or business
cards, save the receipts.
Travel: If you use your personal vehicle to transport food or to go to gigs,
you can claim actual expenses or 54 cents per mile for every business mile
driven. However, there is also what is referred to as the fixed and variable
rate, and these are dirt cheap compared to the standard rate, usually at 58.5
cents in the U.S. per mile; this one is, in fact, easier to calculate.
Example: For example, you used 200 miles for your hustle this month, so
now $120 will be taken from you: 200 x 0.585 = $117. Wow, imagine being
able to save that amount of coffee that goes into one cup for a whole week,
let alone one week to nearly a month.
Business Education: There are learning expenses that are directly related to
your side hustle that can be claimed for tax purposes. Downloaded a
masterclass believing your designs would become extraordinary or took
photography classes in your town? Add it to the list.
Step 4: Thus, the points elaborated under this heading would
help to Stay Organized (So You Don’t Cry at Tax Time).
Let’s be honest: Nobody wants to outrun receipts in Aprils. Here’s how you
can avoid the last-minute panic:
Open a ‘Tax Stash.’ Taxpayers should endeavor to keep all receipts,
invoices, and transaction records in a specific folder, either physical or
online. Services like Expensify or Shoeboxed have been created to allow you
to scan receipts and store them on the go.
Record Monthly: Spend a total of 10 minutes of your time each week to
update your income and expenses. This is why it’s important to work at
being consistent and avoid letting things get to the point of an all-out
tax-time scramble. Besides, it will make future-you appreciate it and give
you the motivation you need to be successful.
An app to sort Apps like TurboTax Self-Employed or Hurdle don’t just tag
expenses but even calculate the taxes based on your self-employed
earnings.
Step 5: Meaningful Planning for Your Tax and Deduction
Finally, after tracking all your expenses, it is time to make your taxes.
Here’s a simplified formula to keep in mind:
Total Side Income minus Cost of the Deducted Expenses = Net Income
Net Income x Tax Rate = Total Tax Owed
Pay Quarterly: If you are in a position to be paying a lot of taxes, then it is
wise to pay in installments, quarterly. All the available internet-based tax
aids will enable you to estimate this amount.
Example: So for example, let’s assume you earned $10,000 for the year
through your side hustle and were able to offset $2,000. In other words,
your total income, which is taxed, is $8,000. To that, multiply your tax rate
(say, 20%) by $1,600 in taxes.
Seek Assistance if Needed. If this is all still too much for you, then you
could hire a competent tax consultant. They can double check whether
you’re claiming all the deductions available and ensure you do not violate
the tax code.
Bonus Tips: Don’t Make These Top Tax Mistakes
Immersing personal and business funds: This should not be done at any
cost due to the possibility of an audit.
Failing to Optimize Expenses: Those couple of bucks here and that couple
of bucks there can go a long way.
The second pitfall is forgetting about state and local taxes. If it applies to
you, don’t forget them!
Final Thoughts
Managing side hustle taxes isn’t exactly thrilling, but it’s essential to keep
your finances in check. Treat your side gig like the mini-business it is. Track
income, track expenses, keep it all organized, and get ready to breeze
through tax season like a pro. Remember, the goal is to keep as much of
your money as possible without the taxman chasing you down.
So hustle hard, track well, and save those coins—because the world owes
you (and your side hustle) a break!