No matter if it’s your side hustle or a simple way of making extra cash, the IRS requires all income to be reported. Accurate recordkeeping will help reduce tax liability while complying with IRS regulations.
Simple spreadsheet software is ideal for tracking earnings and expenses, while more comprehensive accounting solutions may be necessary if your business generates substantial revenues.
1. Keeping track of your income
To ensure that your side hustle is profitable, tracking its income is crucial. You can do this using various tools – online programs such as Freshbooks or Dubsado are ideal, or an Excel spreadsheet works just as well – providing an income column and expense column, then subtracting expenses from income to determine how much profit there is in each month.
If your side hustle is not making enough money to cover its expenses, it’s essential that changes be made. Perhaps hiring full-time staff or investing in more expensive equipment is necessary to generate additional revenues for you to meet them. In addition, opening up a separate checking account for this business might make tracking expenses simpler.
No matter how you manage your finances, maintaining accurate records is an integral component of reducing tax liabilities and complying with IRS regulations. Self-employed workers in particular should keep careful track of all earnings. The IRS offers resources such as its Self-Employment Tax Calculator and Small Business Owner’s Guide to Taxes which can assist in understanding which income is taxable and which income isn’t.
As part of your new business endeavor, creating a spreadsheet that details all earnings and expenses can be extremely useful in easily keeping track of earnings each month and when bills come due – in addition to serving as an invaluable forecasting tool.
As an independent contractor, freelancers may be subject to IRS reporting of income. Independent contractors are generally considered self-employed individuals; furthermore, if your net income surpasses $400 you’re required to make estimated tax payments.
Track your earnings and expenses using various tools; what’s important is getting started and being prepared if your side hustle becomes profitable enough to pursue full time!
2. Keeping track of your expenses
If you make money through side hustles, the IRS requires that you report it. From babysitting gigs to freelance writing contracts, all income earned must be reported as it’s taxed at source. Keep track of expenses related to each gig too – keeping accurate records will save time when filing tax returns! To help facilitate reporting of income and expenses related to side gigs is also crucial – having an organized system in place for record keeping can only make life simpler!
Setting up a separate checking account for your side hustle is the simplest way to keep track of spending and tax time will be less daunting. Simple spreadsheet software such as Microsoft Excel or Google Sheets may also work; more sophisticated accounting solutions such as QuickBooks or Xero may be required for more complicated side hustles or those generating high levels of income.
An added advantage of tracking expenses is their potential deductibility from taxes. When working as a full-time employee, federal income taxes are withheld from each paycheck before it arrives in your bank account; for self-employed people who must submit estimated quarterly taxes payments – failure to do so could incur penalties.
Maintaining expenses is especially crucial for those working gig economy jobs like Uber driving and freelance writing. A 2016 MIT study revealed that 30% of Uber drivers actually lost money due to expenses such as fuel and vehicle maintenance costs that cut into their earnings.
Keep track of your earnings and expenses the easy way with a spreadsheet or accounting software, to reduce stress come tax time — and to avoid overpaying on taxes.
Even though tax law can seem complex and confusing, it’s better to seek help from an accountant or devote some time learning about its nuances. By understanding more of how taxes work and filing on time with confidence, you’ll maximize your hard-earned dollars and ensure they go further than expected.
3. Keeping track of your income tax
As the gig economy expands, more people are finding extra income through side hustles. While these earnings may be subject to taxes, with proper record keeping and planning it’s easy to minimize your tax bill while complying with IRS regulations.
First, it’s essential that you track any income generated from your side hustle. This includes any payments from contracts, online marketplaces or any other platform. In some instances, the company you work for will send a 1099 form with details on your taxable income; alternatively, it may be necessary for you to report this income yourself on your tax return.
Be sure to keep track of the tax-deductible expenses you have incurred for your side hustle, such as business cards, website hosting fees, supplies and equipment purchases. In addition, mileage or travel costs related to running the side hustle as well as business meals that you have consumed should all be claimed back as tax deductible expenses. It would be advisable to open a separate checking account to monitor income and expenses accurately.
Finally, it’s essential that you pay your taxes promptly. Thankfully, tax rates for side hustlers have become lower in recent years – making this an excellent time to start your own business! Make sure that any taxes that you owe are kept track of and make quarterly estimated payments as required.
As long as you keep accurate records and use an effective tax preparation app, reducing your tax burden is easy and filing deadlines remain on track. While paying taxes may seem tedious at times, the more you know about ways to save on them the lower the final bill will be come April.
4. Keeping track of your expenses tax
No matter if it be delivering takeout or walking dogs, building an online business or investing in real estate, many Americans have found ways to bolster their full-time employment with side hustles that provide extra money. Although some pursue such endeavors for extra cash flow purposes alone, it’s essential to remember there will also be tax implications; with proper planning there are ways to reduce tax payments significantly.
IRS law considers any money earned through side hustles as self-employment income, so you are required to file and pay both federal and state self-employment tax returns. Thankfully, estimated payments each quarter can help ease your tax burden significantly.
Another way to reduce your tax bill is through deductions. The IRS allows businesses and individuals to claim expenses that are ordinary and necessary for running their business as deductions, which can save significant amounts off their tax bill. Unfortunately, keeping track of these expenses can be cumbersome; so it may be beneficial to consult with a Ramsey Trusted tax expert so as to maximize these deductions.
Bankrate’s new survey indicates that nearly two in five U.S. adults currently have some sort of side hustle, and those aged Millennial and Gen Z are significantly more likely than Boomers to report having one. Although some use side gigs for leisure purposes, most use them to pay bills or save for retirement.
Most popular side hustles include food delivery, dog walking/sitting/walking online work notary services cleaning among others. As the gig economy expands further it is expected that more individuals will start their own businesses to generate income and become self-employed.
When it comes to increasing earnings, taking just a few simple steps can go a long way. By keeping track of both income and expenses, you can maximize the return on your efforts while saving for retirement funds. By following these guidelines, your tax liability will decrease significantly and you’ll put more of your hard-earned funds toward building them up!