Side Hustle for the Win!

May 24, 2022

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We are in the era of side hustling. Ubering, Doordashing, baking, photography, you name it there is a side hustle for it! Maybe you are side hustling to catch up on some bills, add some savings, or maybe your side hustle is your real passion instead of a corporate job you don’t love. Whatever your reasoning, bringing in some extra cash is always a great!  That extra cash seems magical, but side hustle income isn’t magical to the IRS.  To keep yourself out of trouble you will still need to pay taxes on this income. No worries though, we have some quick tips that will help your awesome side hustle not become a tax nightmare!

Do I need to pay taxes from my side hustle?

Depends! If your net earnings from your side hustle exceeds $400 for the year, then yes.  Most side gig companies will send you a taxable income form to report, which makes things slightly easier on you. You just look that over, make sure it is correct, and send it in to the IRS. On the off chance your company does not, however, you will still need to report that extra income. As a self-employed worker, you must calculate the full 15.3% in FICA taxes due on your independent earnings, and social security and Medicare. This means to stay on the safe side of the IRS set aside 20-35% of your side hustle income. You want to do this, so you are not caught off guard by having to pay your yearly taxes all at once during tax season. That could put even the savviest budgeters in a tight spot. The U.S. income tax is a pay as you earn system, we operate this way to ensure the government has the money it needs to operate throughout the year.  It also helps at the end of the year and prevents a huge year-end tax bill for taxpayers.

What do I need to keep track of?

All these numbers, and regulations sound scary, but don’t worry! If you keep records and receipts things don’t have to be so complicated. Track your income and expenses. This could be as simple as an Excel spreadsheet to software like Quickbooks. Make sure you keep documents including:

  • Bank statements
  • Business records
  • Tax forms
Related:  Salesman or Sales Professional? 5 Ways to Distinguish Yourself

When/how do I pay?

Generally, you have two options on how and when you are going to pay tax on your side-hustle income.  Most go for option one as it keeps people on the safer side of things. They are not likely to dip into the money set aside for the IRS if they are sending it to them four times a year.

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Option 1: Divide the total tax you expect to owe when you file your tax return into four equal payments and pay the estimated taxes when they’re due.

Due Date and Payment Period:

  • April 15 for payment period January 1–March 31
  • June 15 for payment period April 1–May 31
  • September 15 for payment period June 1–August 31
  • January 15 for payment period September 1–December 31

Option 2: Adjust your tax withholding at your normal job by filling out a new W-4 form to account for the taxes you’ll owe on your side hustle income. The IRS has a new tax withholding estimator that makes it easy to figure out how much you need to adjust your withholding.

How to pay the IRS is simple! You can pay online by going to their website. You also can pay by mailing a check, or by phone.  

Tax deductibles!

Keep your business receipts as well! This isn’t just for the IRS to track; it could also help you with deductible expenses which reduces your taxable income.  Which could mean you won’t owe as much! Common deductible expenses related to side gigs include:

  • The business portion of your home
  • Business milage on your car
  • Necessary tools and equipment
  • Tuition for work-related education and training costs
  • Even items needed for your home office

The IRS relies on all taxpayers to be honest, but it also reserves (and exercises) the right to audit tax returns it suspects might be less than complete, and that is a situation no one wants to be in. Best practice would be to set aside 20 minutes in your day to just record keep! Maybe in the morning while you drink your coffee, maybe at night while you sit in bed and wind down for the day. That way at the end of the year, you already have your documents in order.

Related:  Exempt vs Non Exempt employees: What are the differences?

Whether your side gig is a just for fun, or a start up to eventually become your full-time job, we want you to have the knowledge you need to succeed! The IRS is no joke, but they are also not as scary as some have made them out to be! With a little time, management and record keeping taxes are not something to stress over. So, keep making that money and being the most successful you that you can be!

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When you grow and need to be on payroll or hire an employee that’s where Journey comes in. Journey owner-only payroll is easy and affordable and can take a lot of pressure off you. That way you can focus on other things like growing your side business and making that money!

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