If you have a side hustle, it’s important to understand how to properly report your income and expenses for tax purposes. Failing to do so can result in penalties and fines from the IRS. Here are some tips for reporting on taxes for your side hustle:
Keep detailed records
1. The key to properly reporting your side hustle income and expenses is to keep detailed records throughout the year. This includes keeping track of all income received, as well as any expenses related to your side hustle. This can include things like supplies, equipment, advertising, and travel expenses. Keeping accurate records will make it easier to file your taxes at the end of the year and minimize your risk of being audited.
Know your tax obligations
2. It’s important to understand your tax obligations as a side hustler. Depending on how much income you earn, you may need to pay self-employment taxes in addition to income taxes. You may also be eligible for certain deductions or credits, such as the home office deduction or the Qualified Business Income deduction. Consulting with a tax professional can help ensure that you understand your tax obligations and are taking advantage of all available deductions.
Separate your business and personal finances
3. To make it easier to keep track of your side hustle income and expenses, it’s important to separate your business and personal finances. This means opening a separate bank account for your side hustle income and expenses. This will make it easier to keep track of your income and expenses and ensure that you’re not mixing personal and business finances.
File quarterly estimated taxes
4. If you expect to owe more than $1,000 in taxes for the year, you may need to file quarterly estimated taxes. This means estimating your income and tax liability for the current quarter and paying estimated taxes on a quarterly basis. Failing to do so can result in penalties and interest from the IRS.
Use tax software or a tax professional
5. Filing taxes for a side hustle can be complex, especially if you have multiple sources of income or take advantage of various deductions and credits. Using tax software or consulting with a tax professional can make the process easier and ensure that you’re filing your taxes correctly.
In conclusion, reporting on taxes for your side hustle requires careful record-keeping, understanding your tax obligations, and separating your personal and business finances. By keeping accurate records, understanding your tax obligations, and using tax software or consulting with a tax professional, you can minimize your risk of errors and penalties from the IRS.