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Disclaimer: This blog post provides personal finance educational information, and it is not intended to provide legal, financial, or tax advice.
Striking out on my own as a freelance writer is the best decision I ever made. I feel empowered, motivated and free to take my career in any direction I choose. I also feel like it could all fall apart at any moment.
One of the biggest changes that I faced when starting my side gig and then transitioning into a full-time freelancer was doing my own taxes. Handling your own taxes is scary and is one of the biggest #adulting moments I’ve had. Here’s what I learned as my side gig became my main hustle.
Filing Taxes with a Side Gig
The biggest thing that I learned while filing taxes for my writing side hustle is how important it was to take all the deductions I could.
Let’s back up a second. When you make money as a traditional 9-5 employee, the employer is in charge of taking taxes out of your paycheck. But when you’re running a side hustle, you’re in charge of paying your own taxes.
This can cause a big surprise in April if you find out you made a lot of money on the side and now owe taxes. Fortunately, there’s a way to decrease your taxable amount – legally. It’s called taking deductions.
Deductions decrease your taxable income so they’re crucial for people who want to pay fewer taxes. When I was writing on the side, my mom, an accountant, told me to deduct all my writing-related expenses, like paying for magazine subscriptions, having lunch with my editors or driving to my assignments. If I had to buy a new laptop or pay for Microsoft Word, I could deduct that too.
I loved using TurboTax to file my taxes while I was writing on the side. The software prompted me to put in all my deductions so I paid as little taxes as possible.
When you have a side hustle, the IRS has different rules for you. Technically, if you earn more than $600 in a calendar year, you have to report that income on your taxes. Most likely, the company you’re side hustling for will send you a taxable income form to report (usually a 1099-K or 1099-MISC).
Once you get that form, look it over and make sure the amount is correct. Then, you’ll report it as income on your taxes. No matter what your income level is, you still have to report that money.
But some companies don’t send a 1099. For example, I get paid through PayPal and PayPal doesn’t send a 1099 unless you get more than $25,000 from their platform. That doesn’t mean I don’t have to report $24,999 of PayPal money on my taxes.
Ask your side hustle company if they have any resources for people working on their platform. They might have suggestions on deductions to take, like the miles you drive for Uber or parking fee you pay as a PostMates deliverer.
Try to keep track of your deductions, like logging your mileage or taking photos of your side hustle-related receipts. If you make crafts on Etsy, keep your art supplies receipts to deduct on your taxes. No matter how small it is, it will add up. Even if you don’t think of yourself as an entrepreneur or businessperson, the IRS will.
If you still have questions, you can often find free volunteers willing to help. Your local library or community center may have free tax help in the spring.
Why Filing Taxes is Different for Self-Employed People
When you’re self-employed, taxes aren’t automatically taken out of your paycheck every two weeks like they would be in a more traditional job. You act as both the employer and the employee, which means you may have to pay taxes to the IRS on a quarterly basis.
Paying your quarterly estimated taxes is fairly straightforward. The deadlines are the same every year and as long as you’ve tracked your income and expenses, you can accurately estimate how much to pay. I pay 25% of my net income every quarter, which usually gets me close to the right amount I owe. You also need to file a tax return in April, just like everyone else. Once I file in April, I find out if I’m due a tax refund or if I still owe more.
How Filing My Taxes Changed
Before I became self-employed, I was pretty familiar with filing by myself using TurboTax. I’d even helped a couple of my friends file their own taxes, so I saw no reason why anything should change when I became self-employed. After all, I’m a personal finance writer and expert – shouldn’t I be capable of handling my own tax situation?
I’ll never forget the first time I tried to file as a self-employed individual. I was inputting my information into TurboTax, but the software kept saying I hadn’t paid any health insurance premiums for that year, even though I typed in the premiums correctly. TurboTax didn’t have a customer service number I could call, and even my mother – a CPA with a tax specialty – couldn’t help me.
Eventually, I gave up. I emailed an accountant friend who specializes in freelancers and he agreed to help me, even though it was just 11 days before the tax-filing deadline. I paid him $250 and he filed both my state and federal taxes on time.
I’ve used a professional accountant to file my end-of-year taxes ever since, and not just because it’s easier than using a program. My accountant pointed out some little-known deductions I wasn’t using and made sure I was getting back every dollar possible.
If you have a side hustle on top of a regular job, you still have to pay attention to the tax code. Take the time to understand what deductions you can take. Remember, every minute spent figuring out your taxes is one more dollar in your pocket.