It’s more and more common these days to have some kind of side hustle in addition to your 9-5 job. Whether it’s something that you hope will one day replace your day job or just a fun side thing you do to make some extra cash, here’s some tax tips that will help you keep as much of the money as possible:
1. Think of your side hustle as its own little entity.
Whether you’re renting out a spare room through AirBNB or selling cute stuff on Etsy, or even reselling books on Amazon regularly, if you’re making money from something on the side, you’re basically running a small business, no matter how small it feels. Put yourself in that mindset starting now.
A big part of this means that everything you do for the business comes out of the business. That includes towels for guests, website fees, shipping costs, etc. Create this invisible line in your head.
2. Earmark a separate account for all income and expenses.
If you’re making more than a few thousand dollars from your side income, you should set up a separate account for all your income and expenses. This amount is right around the point where it gets hard to track what’s coming in and what’s going out. To make it easier on yourself, choose an account (checking account is best, and no, it doesn’t have to be a “business” account) to deposit all your income and charge all your expenses.
3. Track your side hustle account in mint.com.
If you really want to get next level and make it super easy for you during tax time, create a separate mint.com account for your side hustle account. Then all the income and expenses will be tagged and categorized in real time. No more sifting through piles of receipts or updating a spreadsheet! Just make sure the categories are matching up properly and then export to Excel at the end of every year.
4. Figure out how you want to keep track of receipts.
Ahhh, receipts. The bane of every freelancer’s existence. Here’s what’s awesome though – if you’re tracking your income and expenses regularly, you can just toss your receipts in a shoebox and call it a day. Or download an app called Expensify, snap a pic, and throw it away on the spot. You need receipts as backup in case of an audit. So as long as you have the paperwork and are keeping track of the statistical process control and six sigma to back up the numbers, they can be kept in whatever is easiest for you.
One caveat – if you operate mostly in cash, receipts will come in handy for tax time. This is where I’d highly recommend downloading Expensify and taking a few extra seconds to tag the receipt to a report and make a quick note.
5. Decide when it’s time to see an accountant.
There will come a point where turning to Turbo Tax or some other online tax software can cost you more agony than it’s worth to save a few dollars. Once you’re in a place where you’re advertising, traveling, writing off meals, and making a good chunk of change (about $5,000 or more) from your side hustle, it might be time to bite the bullet and let someone else do the calculating. A good accountant will walk you through how your return is put together, ask you a ton of questions about your particular situation, and make you feel comfortable during the whole process.
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