Avoiding tax issues for side hustlers
Do you have a full-time job and want to work on the side to earn extra money? If so, know that you will become a self-employed individual, which means you will have a new tax form to fill out at the end of the year. It surprises people to learn that income over $600 per year, MUST BE reported on your federal and state income taxes (check with your CPA or a tax specialist because different states have different requirements) .
You may consider it a minimal amount of income, but Uncle Sam is always watching. Having your side hustle set up as a business could offer legitimate and significant deductions for business expenses. For instance, if you’re a dogwalker, you can deduct poop bags, leashes, treats, car seat belts, and even toys, if you purchase them for your “clients”.
If you’re an errands runner, keep track of your mileage for errands-related travel (eg., to grocery store and back to client’s home). There are apps available to help you easily track mileage. The fees for advertising your business are also deductible, but it is crucial that you keep accurate documents, like receipts, in case you’re ever audited.
Do not forget to plan for tax payments. If you’re working a full-time job, your taxes are taken out of each pay, so you don’t “miss” the money. We know it’s easy to get attached to money you earn for side work, so be sure to set some of the profits aside for taxes. Side hustlers should keep at least 25% of their income in a separate checking account as paying taxes is required on any profits greater than $600. Talk to a tax professional about the right percentage to set aside according to your income bracket. If you want to reduce your annual tax bill, open a SEP (simplified employee pension)-IRA (individual retirement account) or a traditional IRA. You will not be taxed on money put into the account until years later when you want to withdraw the funds. Check them out to see which is right for you.
It is advantageous to have a “business only” bank account to keep track of payments, receipts, credit card statements, and invoices. ShingleHanger.com can help you keep track of your finances for FREE ONLY now until March 30! In addition to tracking invoices and payments, our beta software offers a free website and domain name, and a scheduler for jobs. ShingleHanger is easy and simple to use. You are in control of your business when you align yourself with the right tools.