Posted on: 14 October 2015
A side hustle is an excellent way to bring in some extra income outside of your day job. It can be something as simple as babysitting on the weekends, to an online-only craft business. One thing all side hustles have in common is that there are tax implications on the extra money. The following tips can help you prepare for tax day so that your side hustle brings in money, instead of results in a loss due to tax penalties.
Side hustle income is taxed differently than your employer-paid income. It is considered self employment income, which means you are responsible for both your tax debt and the social security and medicare taxes, Or FICA. For your day job, your employer pays half of these, while on your side hustle, you must pay all of these. The taxes and the FICA amount on self employment income are typically paid in quarterly if you will otherwise owe on your taxes for the year. In other words, you estimate how much income your side hustle is expected to bring in for the next three months, and then you pay in the appropriate amount toward your taxes and FICA.
If you prefer to skip the hassle of quarterly estimated payments, you do have another option – increasing your withholding at your day job. Since your employer automatically withholds your expected tax amount from each paycheck, simply increase your withholding amount so it would cover the amount you will end up owing on your side hustle.
This is the single most important thing you need to do with your side hustle. Keep every single receipt and sales slip associated with your business. You need to be able to show a paper trail for every cent that is earned in your side business, along with records for every expense. If you plan on claiming part of your home or the purchase of new equipment, make sure you have a dedicated work space and that you hold onto the receipts for the purchases. Although you don't need to send these in with your annual taxes, they will become an invaluable lifeline if you are ever audited.
It can be well worth the small investment to work with an accountant when figuring out the tax implications of your side hustle. They can help you figure out the proper withholding to take at your day job, let you know what write-offs your business qualifies for, and generally ensure that you are on the right side of the IRS. Even better, your accountant can be an invaluable tool if your side hustle takes off and becomes your main hustle.
For professional help, contact a company such as James Gioia & Company PC.Share