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If you use your hobby to bring in a little extra cash, you have a side hustle. Whether it’s blogging, fixing computers or doing home repairs for others, you have a side hustle. Earning money this way, in addition to your regular full-time job, is becoming more and more common. The earning potential with a side hustle is practically limitless. However, you don’t have taxes taken out of your side hustle income. That doesn’t mean that you get to keep that money tax free. Even if it’s just for fun, the IRS still needs to get their portion. Here are a few tips for your side hustle when it comes to tax time.
When Do You Have to Pay?
Even if your side hustle is a hobby that you happen to make money with, you still need to report any earnings to the IRS on your tax forms. If you don’t make that much, you can simply add the total to the “other income” section on your 1040 form. However, if you make more than $600, you have to file a 1099. Above this amount, your payer must also send a copy of this form to the IRS, but that doesn’t excuse you from filling one out as well. This form gets filed with the rest of your taxes, no later than April 15.
If you make a substantial amount of money, the IRS may decide to treat you as self-employed. As such, you must file a Schedule C, which reports your profits and losses. You may be seen as self-employed if your purpose is to make a profit and your work is regular and continuous.
Keep Track of Your Money
One of your first steps with your side hustle is to keep track of your income. While it’s nice to see the money coming in, it’s important to know where it’s coming from. There are plenty of software programs out there to help you do just that, or you can use an old-fashioned spreadsheet.
It’s also important to keep track of your receipts, even if you are keeping a detailed record of your income. You can keep them in a file folder, or even in a shoebox. There are also apps that help you manage your receipts as well, which can come in handy if you get audited.
One of the biggest pains about having a side hustle is that you get slammed at tax time. You owe money on the profit you make (your total minus your expenses). The amount you get taxed depends upon how much you make. If you are considered self-employed, that amount can range from 20 – 30%. The reason it’s so high is because you get double taxed. You are both the employer and the employee. If you expect to owe $1,000, making quarterly payments is often the best way to handle your taxes. This way, you don’t get hit all at once, and you can plan your finances better. If you live in a state that has both state and federal taxes, don’t forget to file your state taxes quarterly as well.
Take Your Deductions
Deductions can greatly help in the reduction of what you owe. As self-employed, there are certain deductions you can take. For the most part, these deductions are ordinary and necessary expenses that help you run your business. Common expenses include your home office, mileage, and tools and equipment. The total cost of these expenses are subtracted from your earnings for the year, so you only pay taxes on what’s left. As with your earnings, make sure you keep track of your receipts for all of your expenses.
A good side hustle can have you earning just a little extra spending money to earning more than you make at your regular job. With a little bit of planning, you will be ready and able to file your taxes without running into any issues, and keep more of your well-deserved earnings.