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Making some extra bucks is a great idea as you can spend more and improve your lifestyle. And this is not the only reason why people pursue side hustles. You get to do something you love and it makes you more confident about your skill. However, everything is not that great about earning extra money from a side hustle because you need to pay taxes on this income. After all, you are getting money in your pocket and must account for it. If you are not sure about side hustle income and taxes, here are a few facts that you need to know.
Set aside a sizable chunk for taxes
Since income from an additional source is an “extra”, you may not take it seriously from the tax perspective. But believe it or not, you can get into big trouble if you fail to do tax planning as you do with your regular job. Just like your employer keeps a part of your salary for taxes, set aside a proportion of your freelance income for the same purpose. At least a quarter of the income is the recommended value that makes it easy to clear off your self-employment tax burden.
Related: How To Make Money: 2020 Guide
Seek expert guidance
Though you may think that you are doing everything right with your self-employment taxes, you may still get into a fix. It is best to seek the guidance of a seasoned tax lawyer to advise you about filing returns and paying taxes. Using a tax attorney directory is a good idea if you want to find an expert without much work. They can help you understand how pursuing a side hustle complicates your tax situation and what you can do to keep things on track.
Have a record-keeping system in place
Maintaining proper records related to the income and expenses related to your side gig is mandatory. Not doing so will make things stressful when you get closer to the deadline. It is a good idea to maintain a paper file as well as a software record of the entire aspects, such as receipts, business records, car expenses, and tax forms. Having paper records definitely keeps you out of trouble if the authorities come asking for explanations.
Open a separate account for side hustle expenses
If you are supposed to pay taxes on the income from side gig, you can claim deductions for its expenses as well. You will have to treat it as a business to get the benefit and keeping expenses separate from personal expenses is the best approach. So your next step should be to open a separate checking account that serves as a complete record of any expenses you make on this business for the legitimate deductions perspective. While you can have the documentary evidence, a separate account also simplifies your tax calculations.
A side hustle can be lucrative or make you just a few hundred dollars a year but the income is still taxable. Taking the right approach and being regular with these taxes will surely save you from trouble in the long run.
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