Side hustles are a fantastic way to earn extra income, but many people don’t realize these earnings come with tax responsibilities. Whether you’re driving for Uber, selling handmade goods on Etsy, or freelancing, the IRS expects you to report this income.
1. What Counts as Income?
Any money you earn through a side hustle is taxable, even if you don’t receive a formal tax form. Examples of taxable side hustle income include:
- Driving for rideshare companies
- Selling products online
- Freelance or consulting work
Even bartering or receiving goods in exchange for services can be considered taxable income.
2. Self-Employment Taxes
When you earn money through a side hustle, you’re typically considered self-employed. This means you’re responsible for paying self-employment taxes, which cover Social Security and Medicare. These taxes are 15.3% of your net earnings.
3. Deducting Expenses
The good news is that self-employed individuals can deduct business expenses to lower taxable income. Common deductions include:
- Office supplies and software
- Internet and phone bills (proportionate to business use)
- Travel expenses related to your work
Tracking these expenses requires diligent record-keeping.
4. Paying Quarterly Taxes
If you expect to owe more than $1,000 in taxes, you’re required to make estimated quarterly tax payments. These payments are due in April, June, September, and January. Missing deadlines can result in penalties.
5. Why Work with a CPA?
Managing side hustle taxes can get complicated quickly. A CPA can help you:
- Determine your deductible expenses
- Calculate quarterly tax payments
- Avoid common mistakes that trigger audits
The IRS provides a Gig Economy Tax Center to help taxpayers understand their obligations, but working with a CPA ensures you comply fully while minimizing your tax burden.
