Taxes can feel overwhelming for anyone running a side hustle, but a little preparation can save you time, money, and stress when tax season rolls around. Whether you’re just starting out or have been side hustling for years, asking the right questions is key to staying organized and compliant. Here are the top 10 tax questions every side hustler should ask, along with actionable steps and helpful resources to guide you.
1. Am I Required to Report Income From My Side Hustle?
According to the IRS Self-Employed Income Guidelines, any income you earn from a side hustle must be reported—even if it’s just $20. This includes cash payments, income from platforms like Venmo or PayPal, and other non-traditional earnings.
What You Should Do:
Track all sources of income, no matter how small.
Save transaction records or receipts as proof of income.
Use Schedule C (Form 1040) to report your side hustle income and calculate your taxable profit.
2. Do I Need to File Quarterly Estimated Taxes?
The IRS Estimated Taxes Guide explains that if you expect to owe more than $1,000 in taxes, you’re required to file quarterly estimated payments. Failure to do so can lead to penalties and a hefty tax bill at year-end.
What You Should Do:
Estimate your annual income and tax liability using tools like tax calculators or software.
Set aside 25-30% of your income for taxes.
Submit quarterly payments using Form 1040-ES.
3. What Expenses Can I Deduct?
The Tax Deductible Business Expenses page highlights that you can deduct any "ordinary and necessary" costs related to your side hustle. This can include advertising, software, travel, and even part of your home office.
What You Should Do:
Create a list of potential business expenses, such as subscriptions, supplies, and utilities.
Keep receipts and documentation for every expense.
Log expenses in a dedicated tracker or app to make tax preparation easier.
4. Do I Need a Separate Bank Account or Credit Card for My Side Hustle?
According to NerdWallet’s guide, separating personal and business finances simplifies tracking and helps you avoid messy bookkeeping.
What You Should Do:
Open a business checking account.
Apply for a business credit card with perks like cashback or rewards.
Use these accounts exclusively for your side hustle transactions.
5. How Should I Track My Income and Expenses?
On NerdWallet’s guide to expense tracking, I found that using tools like QuickBooks or Wave simplifies recordkeeping and saves you time during tax season.
What You Should Do:
Choose an expense-tracking method, such as an app or a manual spreadsheet.
Record income and expenses regularly, ideally weekly or monthly.
Categorize expenses into buckets like advertising, supplies, and utilities.
6. What Records Should I Keep, and For How Long?
The SBA blog on recordkeeping recommends keeping detailed records, including receipts, invoices, contracts, and tax filings, to avoid disputes and back up your deductions.
What You Should Do:
Organize records by category (e.g., income, expenses, receipts, taxes).
Use cloud-based tools like Google Drive to back up digital copies.
Retain records for 3-7 years, depending on your location’s requirements.
7. What Tax Forms Will I Need?
The IRS page for Schedule C highlights that side hustlers typically use Schedule C to report profits and losses. If you earn more than $600 from any client, expect a 1099-NEC from them.
What You Should Do:
Collect all 1099 forms from clients or platforms by January 31st.
Complete Schedule C to calculate your taxable profit.
Use tax software or consult a tax professional for accuracy.
8. Should I Register as a Business or Stay a Sole Proprietor?
The SBA’s guide to business structures explains that staying a sole proprietor works for many side hustlers, but forming an LLC or S-Corp can offer tax advantages and liability protection.
What You Should Do:
Assess your business liability risk and financial goals.
Research registration requirements in your state.
Consult a tax adviser to determine if an LLC or S-Corp is beneficial.
9. How Do I Calculate and Deduct Mileage for Business Use?
The IRS Standard Mileage Rates page outlines that you can deduct mileage at the current rate (65.5 cents per mile for 2023). Keeping detailed logs is key.
What You Should Do:
Use a mileage tracker app like MileIQ to record trips.
Log details like the date, purpose, and starting/ending locations.
Calculate mileage deductions using the standard rate or actual vehicle expenses.
10. Do I Need a Tax Professional?
On NerdWallet’s guide, I discovered that hiring a tax professional can save you time and uncover deductions you may miss, especially if your income or expenses are complex.
What You Should Do:
Research tax professionals who specialize in self-employment or small businesses.
Schedule a consultation early in the year to plan ahead.
Bring all necessary documents, including income records and expense logs.
Final Thoughts
Tax planning doesn’t have to be intimidating. By asking these 10 questions and taking action, you can protect your side hustle, maximize deductions, and reduce stress when tax season arrives. Remember, I’m not an accountant or tax adviser—this is all research I’ve done. For personalized advice, consult a professional who can tailor their recommendations to your specific needs.
Comments