What You Need to Know Before You File
The rise of the gig economy has made it easier than ever to earn extra income. Whether you’re driving for Uber, selling on Etsy, offering photography services, or freelancing online, that “side hustle” comes with tax responsibilities you can’t afford to ignore.
Even if it’s part-time or occasional, the IRS still wants its share. Here’s what every side hustler and freelancer should know to stay compliant and maximize deductions.
Side Hustle = Business in the Eyes of the IRS
If you’re earning money outside of a traditional job—even just a few hundred dollars—you’re likely considered self-employed. That means:
- You must report all income, even if you don’t receive a 1099
- You’re responsible for self-employment taxes (Social Security + Medicare = 15.3%)
- You may qualify for business deductions to lower your tax bill
Common Tax Forms You Might See
- 1099-NEC: For non-employee compensation (e.g., freelancing)
- 1099-K: For payments via platforms like PayPal, Venmo, Etsy, Uber, etc.
- Schedule C (Form 1040): To report income and expenses
- Schedule SE: To calculate self-employment tax
Even if you don’t receive a 1099, you’re still legally required to report the income.
What You Can Deduct
The good news? You can reduce your taxable income by deducting ordinary and necessary business expenses. Common write-offs include:
- Home office (if used regularly and exclusively)
- Internet and phone (proportion used for business)
- Mileage or vehicle expenses
- Supplies, software, subscriptions
- Advertising and website costs
- Education and training related to your hustle
Tip: Keep detailed records and receipts for every expense.
Do I Need to Pay Quarterly Taxes?
Yes—if you expect to owe more than $1,000 in taxes for the year, the IRS wants you to pay estimated quarterly taxes (due April, June, September, and January).
Failing to do so may result in penalties and interest, even if you pay your full tax bill in April.
Don’t Forget Self-Employment Tax
One of the biggest surprises for new freelancers is the self-employment tax, which covers Social Security and Medicare. It’s 15.3% and applies to net earnings (income minus expenses), in addition to income tax.
Example:
Earn $20,000 freelancing? Expect to pay:
- Around $3,060 in self-employment tax
- Plus income tax, depending on your bracket
Organizing Tips for Side Hustlers
- Use separate bank accounts for business and personal transactions
- Track income and expenses in spreadsheets or accounting software (like QuickBooks or Wave)
- Save at least 25–30% of your income for taxes
- Consider working with a tax professional to avoid mistakes
Hobby vs. Business – What’s the Difference?
If you earn money doing something occasionally (like painting or baking), the IRS might consider it a hobby rather than a business. In that case:
- You must report income
- But you can’t deduct expenses
To be classified as a business, you need to show intent to make a profit, and ideally do so in at least 3 out of 5 years.
Final Thoughts
Side hustles can be a great way to increase your income and pursue your passions—but they also come with tax responsibilities. The key is to stay organized, understand your filing obligations, and take full advantage of the deductions available to you.
Whether you’re new to freelancing or scaling your side hustle into a full-time business, taking care of taxes the right way can save you time, money, and stress.
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