More and more people are taking on “side hustles” – extra jobs or projects they do besides their main work to earn more money. Summer can be a great time to think about a side hustle or gig work since you might have more free time. Plus, with back-to-school costs just around the corner, that extra income can really help. We’ll look at the good things, the challenges, and what you need to know about taxes if you decide to do a side hustle for extra cash.

✅ The Appeal of Side Hustles: Pros

First and foremost, side hustles bring in extra cash, which can be a game-changer for paying off debt,  saving up for goals, and managing your finances. Beyond the money, they’re a great way to learn new things and meet new people, potentially opening doors for your career down the line. You’ll often find you have more flexibility and control over when and how you work, and you might even get to be your own boss. For many, side hustles are about doing what they love and getting paid for it, which can be really rewarding.

Finally, having a side hustle can make you feel more financially secure. That extra income acts like a safety net if you lose your main job or have unexpected bills. By having more than one way to earn money, you’re not relying on just one paycheck, which can give you more peace of mind.

⚠️Navigating the Challenges: Cons

While side hustles offer many benefits, it’s important to consider the potential drawbacks. A major one is the time commitment and risk of burnout, as juggling extra work with your main job and personal life can be demanding. Another challenge is income instability, with fluctuating workloads and the ongoing need to find clients. Starting a side hustle can also require an initial investment of both time and money. You’ll also have to be prepared to juggle multiple responsibilities like marketing your services, managing finances, handling customer inquiries, and staying organized, all on top of your regular work and personal commitments.

All of this can take away from your personal time. You might have less time for hobbies, relaxing, or hanging out with friends and family. This can sometimes put a strain on your relationships if you’re not careful about making time for the people you care about.

📃 Money in, taxes out: Understanding your side hustle taxes

Side hustle income comes with tax responsibilities. Here’s a quick guide to the essentials:

Self-Employment Tax: Think of this as your contribution to Social Security and Medicare. Unlike a regular job where this is split with an employer, you handle both shares. You’ll need to calculate roughly 15.3% of 92.35% of your net profit and ensure it’s paid to the IRS.

Income Tax: Just like your regular job, the income you make from your side hustle is also taxable at the federal level. You’ll report this on your tax return. If you anticipate owing over $1,000 in federal income tax, you might be required to pay estimated taxes in quarterly installments to avoid penalties later on. Remember you can deduct one-half of your self-employment tax from your gross income.

State and Local Taxes: Depending on where you live, you might also owe state income tax on your side hustle earnings. Additionally, if your side hustle involves selling goods or certain services, you’ll need to understand and comply with sales tax regulations, including collecting and remitting the appropriate amounts.

💡 Tax-saving opportunities

The good news is that the IRS allows you to deduct certain expenses directly related to running your side hustle. This can lower your taxable income. Some common examples include:

• Home Office: If you use a dedicated space in your Davie, Florida home exclusively for your side hustle, you might be able to deduct a portion of your home expenses.
• Supplies: Costs for materials you use for your side gig.
• Software and Online Services: If you pay for tools that help you run your side hustle.
• Marketing and Advertising: Expenses to promote your services or products.

Remember, keeping thorough records of all these expenses is crucial for claiming these deductions.

Final thoughts

A side hustle is a great way to earn extra money and do what you love. But it’s important to know about taxes too. Keeping good records of your income and expenses will make tax time much easier. While the main tax ideas for side hustles are pretty clear, the details can sometimes be tricky. If you ever feel confused or not sure what to do about taxes for your extra work, don’t hesitate to talk to a tax professional. They can give you advice specific to your situation and help you feel confident you’re doing things right, so you can focus on making your side hustle a success.