Written by: M Katie Helle, CPA
We are currently in the era of entrepreneurship with many young adults. They are using their skills and knowledge to start a side hustle to earn an income. Some people do not realize that their side hustle typically has to be reported on their taxes.
Your side hustle income is considered self-employment income and is reported on Schedule C in your personal income tax return. On this Schedule, the gross income is reported along with any expenses incurred that are ordinary and necessary to operate your side hustle. The net amount of income, income less expenses, is what one ultimately pays taxes on.
Side hustle income is different from W2 wages in that the side hustle income also incurs self-employment taxes. When earning income from a side hustle, it is a good idea to set aside 25% to 30% of your income for self-employment, federal and state taxes.
One of the most important aspects of having a side hustle is to have excellent record-keeping. The first step starts with keeping business and personal items separate. Furthermore, it’s essential to keep receipts for those business expenses. Lastly, organizing these expenses by category will save you much time when filing your taxes. Something as simple as a spreadsheet works great for a small side hustle. There are numerous free templates available with a quick Google search.
The Internal Revenue Service has an excellent guide to side hustles and filing taxes. Furthermore, there is a lot of free information on the internet regarding a side hustle and taxes. The key to a successful side hustle is to be organized and prepared for taxes.
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Katie Helle has been in public accounting since 2009, with experience in individual and small business taxation, specializing in payroll and sales tax reporting and compliance and QuickBooks accounting software. She is an Arizona native and resides in Chandler, Arizona with her husband, young daughter, and two goldendoodles. Outside the office, she is actively involved with community outreach, enjoys fitness, and can be found with a power tool or two in her hand for her many crafts.