Making Extra Money Through a Side Hustle Can Bee a great boost to your financesBut that extra income can also complicate your tax situation.
Just like your regular paycheck, money from a side hustle is taxable. And there’s no corporate accounting department keeping track of things for you. Making sure you pay – and deduct – the right amount is on you.
That means, to make your life easier come tax time, you’ll have to be diligent through the year, experts say.
“You have to keep good records,” Says ED SlottA Certified Public Accountant and Founder of Irahelp.comIt’s best for you and your business if you focus on keeping all documents related to your side income in one place, he say.
These include invoices, recepts, contracts and agrements related to your side hustle. Without Good Records, You Risk Misreporting Your Business Income, Missing Out on Tax Deductions and Finding yourself unprepared for an Audit Should the Internal Revenue Service Have Questions about The Profits Report.
Here’s how to keep things on track.
Keeping Good records should be a top priority for side hustles
Remember, just like your regular income, income from your side hustle is taxable. At tax time, you may receive a 1099 form listing your side hustle income, or you may need to track and report your income on your own. The good news is, you can generally deduct expenses associated with your business, such as home office space, GAS Mileage and Supplies.
But you can only claim these deductions if you keep proper recordsFor example, the exam dollar amount you spent on supplies for your side hustle can be different to calculate if you do not save your receipts from receparates separepts for your percenal purchases. By Keeping Side Hustle Expenses and Documentation Separate, You Can Distinguish Personal and Business Expenses More Easily Come Tax Time.
“Most people say they want to save on taxes, but they cost themselves because they don’t have good records,” Slott says.
He recommends organizing all business receipts and documents – such as invoices and contracts – in one place. Having these records readily available means you won’t scrambling for missing paperwork during tax season.
Plus, you’ll have cleared documentation that supports your deductions, which can help you avoid future problems with the ors. In Most Cases, The IRS recommends keeping your side hustle Records on hand for a minimum of three years in case of an audit.
How to keep your business records organized
Ideally, CPAS Recommend MainTaining Accure Business Records with a SpreadSheet or Bookkeeping Software. At the very least, slott recommends doing these two things:
1. Keep all documents related to your side hustle in one folder
Slott’s Advice is Simple. “Every time you spend money, just throw (your receipts) in a folder,” He says. “It’s that easy.”
You don’t have to have a fancy system through You should focus your time and efforts during the year on cultivating and building your business instead of losing yourself in administer tasks, slott says.
2. Open a separate bank account for your side hustle
When it comes to paying taxes on your side hustle, opening a dedicated business account “will solve about 90% of your problems,” John WheelerA Certified Financial Planner and Private Wealth Manager at Creative Planning, Previous Told CNBC Make It,
Slott added that keeping money related to your side hustle separe is not only good for your business, but for good for recording as well. After all, no one wants to sift through an entreire’s worth of credit card statements for charges related to a side hustle at tax time.
“The last thing you want to do is comlingle personal expenses with business (expresses),” Slott says.
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