Ugh, taxes. I am willing to wager that your day was proceeding smoothly until you accessed this article, correct?
Listen, I get it. I used to be the person who would rather eat glass than think about taxes. I'd stuff receipts in random drawers, ignore any mail from the IRS, and basically pretend like side hustle taxes weren't a real thing that applied to me.
Then I got completely screwed.
Two years ago, I owed $2,847 in taxes that I had no idea were coming. Twenty-eight hundred fucking dollars. I remember staring at that number on my computer screen, thinking, "This has to be a mistake." It wasn't. I'd been making money from freelance writing and completely ignoring the tax side of things. That bill wiped out everything I'd made for three months and taught me the most expensive lesson of my life.
Here's what nobody tells you when you start your adorable little side hustle: the government doesn't care if you're just walking Mrs. Johnson's dog for twenty bucks twice a week. Make more than $400 in a year? Congrats, you're a business owner now. And business owners must navigate a substantial amount of tax-related complexities that are not encountered by regular employees.
However, once you understand these aspects, you can significantly reduce costs. Last year I saved over $1,300 in taxes just by knowing what I could deduct and keeping decent records. The same income generates significantly less money for the government.
This may seem tedious, but it's crucial to understand the difference between preserving your money and allowing it to vanish into the vast expanse of government bureaucracy.
Have you completed your taxes? Now focus on growing your income with our complete side hustle guide.
Welcome to Self-Employment Hell (Population: You)
The IRS considers you self-employed the moment you earn $400 from side hustles in a year, which is incredibly easy to achieve. I have four hundred dollars. That's like two decent freelance articles or one weekend of Uber driving.
And being self-employed means you get to deal with a bunch of fun new responsibilities:
You pay more taxes. You must also pay self-employment tax, which is 15.3%, in addition to regular income tax. So if you made $5,000 from your side hustle, you automatically owe $765 just in self-employment taxes before we even talk about regular income tax.
You have to file extra forms. Schedule C for business income and expenses, and Schedule SE for self-employment tax. More paperwork means more opportunities to make mistakes.
You might have to pay quarterly. If you're going to owe more than $1,000 in taxes, you can't just wait until April. The government wants its money four times a year.
But you can deduct business expenses. This is actually the good news. Did you buy all those things for your side hustle? Most of them are deductible.
The self-employment tax thing kills most people because nobody warns you about it. When you work a regular job, your employer pays half of your Social Security and Medicare taxes. When you're self-employed, you pay both halves. It's like getting punched in the face by math.
How Much Money Can Be Legally Hidden from the Government?
Everyone asks this, and the answer is way more than you think.
Save 30% of everything you make from side hustles.
I don't care if that sounds like a lot. I don't care if you think you're not making enough to worry about it. Save thirty percent.
Here's why: You're paying federal income tax (10-37% depending on how much you make), state income tax (unless you live in one of the lucky states without it), and that evil 15.3% self-employment tax.
So let's say you made $8,000 freelance writing this year. Thirty percent of that is $2,400. It sounds like a lot until you realize that it might actually be close to what you owe.
My system: I have a separate savings account that I call my "tax jail." Every time I receive payment for a side gig, I immediately transfer 30% to my tax jail account. The money is dead to me until tax time.
Pro tip: Save a percentage of what you get paid, not what you profit. It's way easier to track, and you'll never come up short.
I learned this the hard way when I was trying to calculate profits and got confused about what I could deduct. Just save 30% of the check. Period.
A Guide to Record Keeping for Those Who Dislike It
I used to keep my business receipts in a shoebox. It's a shoebox from Target. Don't be me.
The IRS doesn't care if you're disorganized. If you can't prove you spent money on business stuff, you can't deduct it. And those deductions can save you hundreds or thousands of dollars.
What you have to track:
- Every penny you make from side hustles (even if they don't send you a tax form)
- Every business expense that has a receipt or record
- Miles, you drive for business.
- How much of your home do you use for work?
- Business use of personal stuff (your phone, computer, etc.)
Tools that don't suck:
- Wave Accounting: Free, made for small businesses, actually works
- QuickBooks Self-Employed: Costs like $15/month but connects to your bank and tracks everything automatically
- Excel/Google Sheets + phone photos: Cheapest option if you're disciplined enough to actually use it
I use Wave because it's free and I'm cheap. I connect my business bank account (yeah, you need one of those), and it automatically imports transactions. Then I just categorize them as income or business expenses.
The phone photo hack: Take a picture of every business receipt immediately. I was right there at the store. I have a folder on my phone called "Tax Shit," and everything goes there. This method only takes five seconds and has saved my ass multiple times.
Separate bank account: This isn't optional if you want to stay sane. Open a business checking account and use it ONLY for side hustle stuff. Most credit unions have free business accounts. This makes tracking income and expenses about a million times easier.
Deductions That Can Save Your Ass (And Your Money)
This is where things get intriguing. The government says you can deduct "ordinary and necessary" business expenses. That's pretty vague, which works in your favor.
Home Office Deduction
You can deduct a space in your home that you use only for your side hustle. The key word is "only." Your kitchen table doesn't count unless you literally never eat on it.
Two ways to calculate it:
- Simple way: $5 per square foot up to 300 square feet (max deduction of $1,500)
- Complicated way: Figure out what percentage of your home is your office, then deduct that percentage of all your home expenses.
I have a spare bedroom that's 8×10 feet (80 square feet) that I only use for work. Using the simple method, I deduct $400 per year. Not huge money, but it's $400 I don't have to give to the government.
Car Stuff
If you drive for your side hustle, this can be a huge deduction. You can either:
- Track mileage: 65.5 cents per mile in 2023 (this changes every year).
- Track actual expenses: Gas, repairs, insurance, etc., but only the business percentage.
What counts as business miles:
- Driving to meet clients
- Going to pick up supplies
- Any delivery or rideshare driving
- Travel between work locations
What doesn't count: Driving from your house to your main job. That's commuting, not business.
I use an app called MileIQ that automatically tracks where I drive and lets me categorize trips as business or personal. It saves me from trying to remember where I went three months ago.
The mileage deduction is usually way better than tracking actual car expenses unless you drive something really expensive.
Equipment and Supplies
Pretty much anything you buy for your side hustle can be deducted:
- Computers, phones, cameras, and tools
- Software subscriptions (Canva Pro, Adobe, etc.)
- Office supplies (even if you work from home)
- Books, courses, and training related to your business
- Website costs, domain names, hosting.
The catch: If you use something for both personal and business purposes, you can only deduct the business percentage. So if you use your phone 50% for business, you can deduct 50% of your bill.
My biggest deductions:
- Laptop and monitor: $900 last year
- Software subscriptions: $300/year
- Internet (50% business): $240/year
- Courses and books: $180/year
Meals and Entertainment (Sort Of)
You can deduct 50% of business meals, but the rules are annoying:
- Meals with clients or potential clients
- Meals while traveling for business
- Meals at business conferences
What doesn't count as work time: Your lunch while working from home, even if you are actively engaged in tasks.
Keep detailed records of who you ate with, where, when, and what you talked about. The IRS loves to audit meal deductions.
Professional Services
- Accountant fees and tax prep
- Legal fees for business stuff
- Business coaching or consulting
- Professional memberships
Marketing and advertising.
- Business cards, flyers, promotional materials.
- Facebook ads, Google ads
- Website design
- Networking event fees
Quarterly Payments (The Government's Favorite Subscription Service)
If you anticipate owing $1,000 or more in taxes from your side hustle, it is advisable to make quarterly payments to the government. They don't want to wait until April to get their money.
2024 due dates:
- Q1: April 15, 2024
- Q2: June 17, 2024
- Q3: September 16, 2024
- Q4: January 15, 2025
How much to pay: Generally 25% of what you expect to owe for the year. Or you can pay 25% of what you owed last year, which is simpler.
How to pay: Online at IRS.gov (easiest), by phone, or mail a check with Form 1040ES.
What happens if you don't: Penalties and interest. The rate is usually around 5-8% annually, which adds up fast.
I make quarterly payments because it's more convenient to pay smaller amounts throughout the year than to face a large tax bill in April. Plus, the penalties are real, and they hurt.
Safe harbor rule: If you pay 100% of last year's tax bill through quarterly payments (110% if you made over $150,000), you won't get penalized even if you end up owing more this year.
Different Side Hustles, Different Tax Headaches
Not all side hustles are taxed the same way:
Freelancing/Consulting (1099 work):
- You'll get 1099-NEC forms from clients who paid you $600+.
- Report income on Schedule C.
- Deduct business expenses.
- Pay self-employment tax on profit.
Gig economy (Uber, DoorDash, Instacart):
- Usually get 1099-K or 1099-NEC
- Mileage is your largest deduction—please ensure it is tracked diligently.
- You can deduct phone, car expenses, and supplies.
- There are special rules for deducting car expenses if you use your vehicle for rideshare services.
Online sales (Etsy, eBay, Amazon):
- Report gross sales, and deduct the cost of what you sold.
- Track inventory if you're buying and reselling.
- Deduct materials, shipping, and platform fees.
- Home office deductions if you have a dedicated workspace.
Rental income (Airbnb, etc.):
- Different tax forms are required: Schedule E instead of Schedule C.
- Can deduct cleaning, supplies, repairs, furniture.
- Depreciation on improvements
- Different rules than other side hustles
State Taxes: A Complicated Necessity
Don't forget about state taxes. Some states do not impose an income tax, which is fortunate for their residents; in contrast, other states have high income tax rates that significantly reduce earnings.
No state income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, Wyoming
High state taxes: California (up to 13.3%), New York (up to 10.9%), New Jersey (up to 10.75%)
Some cities have their taxes too (looking at you, NYC).
Investigate the tax regulations specific to your state or consult a local tax professional. If you're unprepared, state tax bills can be devastating.
Common Mistakes That Will Screw You
Not keeping receipts: If you can't prove it, you can't deduct it. Keep everything.
Mixing personal and business money: Use separate accounts and credit cards. It significantly simplifies your life.
Not tracking miles: Often the biggest deduction for service businesses.
Forgetting quarterly payments: Penalties add up fast.
Not reporting all income: You owe taxes on everything, whether you get a 1099 or not.
Getting creative with deductions: Don't try to deduct your Netflix subscription as "market research." The IRS isn't stupid.
Not saving for taxes: That 30% rule isn't a suggestion.
When to Hire Someone Who Actually Knows This Stuff
You can probably do your own taxes if:
- Simple side hustle (one type of income)
- Made less than $20,000
- Comfortable with tax software
- Have time to figure it out
Hire a professional if:
- Multiple income sources or complicated situations
- Made over $30,000 from side hustles
- Have employees
- Getting audited
- Value your sanity.
What to look for:
- CPA or Enrolled Agent
- Experience with small businesses
- Fixed pricing (not hourly)
- Available year-round, not just during tax season
Cost: $300-800 typically, but could save you way more than that.
Tax Software That Won't Make You Cry
TurboTax Self-Employed: $120, handles everything, and holds your hand through the process. H&R Block Self-Employed: $105, excellent interface, slightly cheaper FreeTaxUSA: $15, basic but functional Credit Karma Tax: Free but limited
I use TurboTax because it's worth the extra money to not screw something up. It asks you questions in plain English and figures out the forms for you.
If your side hustle is really simple, FreeTaxUSA works fine and costs way less.
Planning Ahead (Because Future You Will Thank You)
Business structure: If you're making serious money ($30,000+), talk to someone about forming an LLC or S-Corp. Can save on taxes.
Retirement accounts: SEP-IRA or Solo 401(k) let you save for retirement and reduce current taxes.
Equipment timing: Buy business equipment before December 31 to deduct it this year.
Income timing: If possible, delay December payments to next year if you want to reduce this year's taxes.
The Simple Monthly Routine That Saves Your Ass
Every time you get paid:
- Please allocate 30% to tax savings at your earliest convenience.
- Please record the income in your tracking system.
- Photos of any receipts.
Once a month:
- Categorize expenses.
- Check if a quarterly payment is needed.
- Clean up any missing records.
Once a quarter:
- Please proceed with making an estimated tax payment.
- Review how much you've made/spent.
- Adjust the savings rate if needed.
This takes maybe 30 minutes a month but saves 20+ hours of panic during tax season.
Your Action Plan (Do This Stuff Now)
This week:
- Please consider opening a business bank account if you haven't already.
- Set up automatic transfer to a tax savings account.
- Download Wave or QuickBooks and connect your accounts.
- Start taking photos of receipts.
This month:
- Please calculate and make a quarterly payment if you are behind.
- Please take a moment to review your state tax rules.
- Download a mileage tracking app.
- Organize existing receipts and records.
Before December 31:
- Buy any equipment you need for next year.
- Prepay some January expenses in December.
- Meet with an accountant if needed.
- Get organized for tax season.
Bottom Line: Taxes Suck, But Surprises Suck More
Look, nobody enjoys this stuff. Taxes are boring, confusing, and feel like punishment for trying to make extra money. But here's the deal: understanding this shit can save you thousands of dollars and massive headaches.
The people who get screwed are the ones who ignore taxes until April and then panic. The people who do well set up simple systems and follow them.
You don't need to become a tax expert, but you do need to understand the basics. Track your money, save for taxes, know what you can deduct, and don't try to cheat.
Most important stuff:
- Save 30% of side hustle income for taxes.
- Keep records of everything.
- Understand what you can deduct.
- Pay quarterly if you owe $1,000+.
- Get help if things get complicated.
The $2,847 surprise I got taught me that being ignorant about taxes is way more expensive than spending a few hours learning this stuff.
Don't be me. Get your shit together now before the government does it for you.
Got your taxes sorted? Now focus on making more money with our guides on scaling to $1,000+ monthly and passive income strategies.
