How should I track income and expenses for a side hustle?

Keep detailed records of all income sources and receipts, separate business and personal accounts, categorize expenses (supplies, home office, vehicle, communication), and maintain logs or digital copies to substantiate deductions.

Do I need to make estimated tax payments as a gig worker?

If taxes aren’t withheld from your side-hustle income, regularly estimate your tax liability and set aside funds. If your expected tax is significant, make periodic estimated payments to avoid penalties.

How to File Taxes on a Side Hustle or Gig Work

A hands-on resource to help business owners prepare for tax timeAlgorithmExceptionRevenue and expenses, deductible and non-deductible assets - understanding each of these accounting practices is a vital aspect of any small business.

Bringing in additional money with a side hustle or gig work can be empowering, but it also comes with tax implications that are different from earning a paycheck like regular employment. This guide shows you clear-cut ways to file your taxes for a side hustle, what is considered taxable income, popular deductions and how to prepare for no surprise tax season.

Understand your tax status

You’re generally treated as self-employed for tax purposes if you freelance, take gig assignments or run a small side business. That also means you will have to report the gross income from your side hustle on your taxes and determine what, if any self-employment or other commensurate contributions are due. The difference is that it side-steps business income vs. hobby income: if you make the effort to vend with a profit motive and keep records, generally you have a business.

Track all income carefully

Begin by gathering every source of income connected to your side hustle. That also counts payments from clients, tips, sales and any platform payouts. Save invoices, bank deposits, screenshots or a written log — anything to prove the amount and date of payment. Tracking income accurately can prevent missed revenue and make filing taxes for gig worker taxes simpler.

Separate business and personal finances

Open a business account for side-hustle money, or, at the very least categorize and separate personal and business spending some other way. Maintaining separate accounts will also simplify your process for figuring net profit and track deductible expenses. If you mingle your personal money with company funds, you may overlook write-offs or muddy your accounting when required substantiation.

Record and categorize deductible expenses

Business expenses, which are deductible against taxable profit. Common categories include:

Goods: materials, tools or objects acquired to provide services or produce items.
Home office: a percentage of rent, utilities and insurance if you have a space in your home that is used regularly for business.
Vehicle and travel: mileage or expense for vehicle use or travel directly related to business activity; document dates and business purpose.
Communications: a percentage of phone and internet costs spent on the business.
Professional fees: payoff for professional advice, instruction or services that aid the business.

Save receipts, bills and digital records. For jointly used items, assign a logical percentage to business and document how you computed it. Proper categorization will help maintain tax filing of freelance details and stick when questioned with deductions.

Estimate and save taxes all year

Unlike in traditional employment, taxes are not withheld from side hustle income automatically. Estimate how much you will owe, and save some money to avoid a big bill — and potential penalties. The general rule of thumb is to set aside 25–30% of your take-home pay (after deductions) for tax, but your specific rate will depend on how much you make and what else you’ve got going on. If you owe a large amount of taxes, you might have to pay the tax authority every quarter up until that point to fulfill gig economy tax rules.

Determine net income and taxable income

When tax time rolls around, you’ll add up your gross income and subtract out allowed business expenses to get to net profit. Subtract the business expenses from the income and this net number is what you will report on the part of your tax return that concerns self-employment or business income. From that figure, you calculate the tax owed, including any self-employment taxes and income taxes based on your total taxable income.

DOCUMENT THOROUGHLY AND SAVE THAT SH*T!

Let it be organized. Keep receipts, mileage logs, invoices, bank statements and a record of payments. These records not only simplify filing, but they are crucial if you’re ever audited. Routine recordkeeping makes it simpler to monitor seasonal changes in earnings or arrange for estimated payments.

Understand frequent mistakes and how to resolve them

Understating income: Keep a written record of all payments made to you, even small amounts. Individual little payments add up over time and deserve to be reported.
Deductions you are forgetting: Don’t forget about valid write-offs, such as supplies, a part of utilities for a home office and business-related travel. Deductions you let slip away result in higher tax than you should pay.
Inadequate record keeping: Sketchy records or a lack of receipts can put deductions at risk. Date each receipt and provide clear descriptions.
Mixing personal and business expenses: Even with a small business, keep transactions separate to avoid errors. If you have a mixed transaction, document the business part of it.

Plan for growth and complexity

If your side hustle grows, look at formalizing elements of the operation. That could mean investing in better bookkeeping, hiring a tax professional or overhauling how you bill and are paid. The higher the income, the more valuable tax planning becomes: contributions to retirement plans, strategies for health expenses and more complicated depreciation rules may come into play.

When to consult a professional

No-frills side gigs with no fancy income or expenses can frequently be managed by a conscientious do-it-yourself method, involving you keeping scrupulous notes and having a basic understanding of tax rules. If, however, your situation involves numerous income sources, very big write-offs, an inventory to account for or complicated travels or if you wonder what category you fall into, talk to a tax pro. (A professional can assist you in maximizing deductions, understanding self-employment taxes and planning for quarterly payments while minimizing your tax burden legally.)

Final checklist before filing

Get together records of income and bank statements.
Organize and sort receipts and expense paperwork.
Compute net profit by taking gross income minus business expenses.
Put money aside and prepare any estimated payments for taxes.
Maintain records — and digital back-ups of those records.
If it becomes more complex, consider getting professional help.

It may seem intimidating to file taxes for a side hustle or gig work the first time around, but so long as you keep orderly records, are aware of deductible expenses and get into the habit of setting aside money for taxes as you earn it, you can do it with confidence. The more you take these tips to heart, the less stress and time-pressure you will feel when you are compiling all your end-of-year tax paperwork each January.