Side Hustles and Taxes: What You Need to Know Before Filing

Side hustles are more popular than ever, whether you’re freelancing, driving for Uber, selling on Etsy, or offering consulting services. While earning extra income is great, it also comes with tax responsibilities that many side hustlers don’t realize until tax season arrives.

If you earned money outside of a traditional job in 2024, here’s what you need to know about self-employment taxes, deductible expenses, IRS reporting rules, and tax-saving strategies to keep more of your hard-earned money.

Understanding Self-Employment Tax

When you’re self-employed, the IRS considers you both an employee and an employer. This means you’re responsible for paying self-employment tax, which covers Social Security (12.4%) and Medicare (2.9%)—a total of 15.3% on your net earnings.

How Much Will You Owe?

You pay self-employment tax on any net earnings over $400 in a year. This is in addition to your regular income tax.

For example, if your side hustle brought in $10,000 after expenses, your self-employment tax would be:

💰 $10,000 x 15.3% = $1,530

🔹 Good news: You can deduct half of this tax ($765) when calculating your taxable income.

Quarterly Tax Payments

Unlike a W-2 job where taxes are withheld from your paycheck, self-employed individuals must pay estimated taxes every quarter if they expect to owe more than $1,000 in taxes for the year.

🗓 Quarterly Tax Deadlines for 2024:

• April 15, 2024 (for income earned Jan–March)

• June 17, 2024 (for income earned April–May)

• September 16, 2024 (for income earned June–August)

• January 15, 2025 (for income earned Sept–Dec)

💡 Tip: To estimate your payments, use IRS Form 1040-ES, or set aside 25-30% of your side hustle income to cover taxes.

Deductible Business Expenses: Reduce Your Taxable Income

One of the biggest perks of having a side hustle is that you can deduct business expenses to lower your taxable income. Here are some common deductions you don’t want to miss:

1. Home Office Deduction

If you use part of your home exclusively for business, you may be able to deduct a portion of your rent, utilities, and internet. The simplified method lets you deduct $5 per square foot (up to 300 sq ft).

2. Mileage Deduction

If you drive for business (deliveries, client meetings, rideshare), you can deduct mileage at 67 cents per mile (2024 rate). Keep a mileage log using apps like MileIQ or Stride.

3. Equipment & Supplies

Purchased a laptop, camera, or office supplies for work? These expenses are 100% deductible if used for business.

4. Software & Subscriptions

Expenses for tools like QuickBooks, Canva, Zoom, and website hosting can be deducted.

5. Marketing & Advertising

Spending money on Facebook ads, a website, or business cards? You can write off these costs.

💡 Tip: Keep detailed records of your expenses using apps like Wave, QuickBooks, or Expensify to make tax time easier.

New IRS Reporting Rules for Digital Payments (Venmo, PayPal, Cash App)

If you receive payments through Venmo, PayPal, Cash App, or other third-party platforms, you need to be aware of new IRS reporting rules.

What Changed?

• In previous years, payment apps only sent Form 1099-K if you had over 200 transactions and $20,000 in payments.

• New for 2024: The threshold is $5,000 in total payments. (This is an increase from the originally proposed $600 threshold.)

📌 What This Means for You:

• If you receive more than $5,000 in business payments through PayPal, Venmo, or Cash App, you’ll likely receive a 1099-K.

• Personal transactions (gifts, splitting dinner bills, etc.) are NOT taxable—but you should keep records to prove they weren’t for business.

💡 Tip: Use separate accounts for personal and business transactions to avoid tax confusion.

Tax-Saving Strategies for Side Hustlers

Beyond deductions, here are some strategies to legally lower your tax bill:

1. Contribute to a SEP-IRA or Solo 401(k)

• If your side hustle is bringing in steady income, consider opening a SEP-IRA or Solo 401(k) to lower your taxable income while saving for retirement.

• You can contribute up to 25% of your net earnings (max $69,000 in 2024) to a SEP-IRA.

2. Hire a Family Member

• If your kids help with social media, packing orders, or bookkeeping, you may be able to pay them a salary (tax-free up to $14,600) while reducing your taxable income.

3. Track Every Expense

• Many freelancers miss deductions simply because they don’t keep receipts. Use an app like Everlance or Keeper Tax to track expenses automatically.

4. Form an LLC for Additional Tax Benefits

• If your side hustle is growing, forming an LLC and electing S-Corp status can reduce self-employment taxes. Consult a tax pro before making this move.

💡 Need personalized tax strategies? Click here to become a client!

Final Thoughts: Be Proactive About Your Side Hustle Taxes

Side hustle income isn’t tax-free, but with the right strategies, you can lower your tax bill and avoid surprises at filing time.

✅ Key Takeaways:

✔ Set aside 25-30% of your income for taxes✔ Pay estimated taxes quarterly if you owe more than $1,000✔ Track business expenses to maximize deductions✔ Watch for 1099-K forms if using Venmo, PayPal, or Cash App✔ Consider tax-saving strategies like a SEP-IRA or LLC

👉 Want expert tax help for your side hustle? Click here to become a client today!