Everyone has a side hustle these days. Earlier this year, Bankrate released a report claiming over 44 million American adults are earning money outside of their main source of income.
Of course, I’m one of them. I started freelance writing as a side hustle in October of 2015 and turned it into a full-time gig ten months later.
Maybe you’re considering a freelancing to save for a big purchase, pay down debt, or just pursue a passion you hope to eventually take full-time.
Unfortunately, many people don’t consider the financial aspects of the side hustle until they’ve made a few mistakes. Whether your freelance work earns just a few dollars a month or a several thousand, tracking your profits and paying taxes are non-optional. Here are a few essential steps to get started on the right foot.
As a small business owner, finding a small business-friendly bank was actually one of the more challenging aspects of setting up my business! When I began my search, I quickly discovered that many banks charge hefty fees unless you keep a large balance on your account. Others make small business owners jump through hoops to prove they’re a legitimate business. That’s why I was excited to tackle this assignment from FreshBooks – How to Find a Small Business Friendly Bank.
Last year, I wrote a blog for Henry + Horne about how slow the IRS has been to adapt to the on-demand economy. In it, I quoted a report from the Kogod Tax Policy Center that found:
1/3 of on-demand workers did not know whether they were required to file quarterly estimated tax payments
36% were not familiar with the kinds of records they would need to maintain to substantiate income and expenses for their work
43% had no idea how much they would owe in tax for their on-demand work and had not set aside money for taxes
1/2 were unfamiliar with deductions and credits that could be used to offset their self-employment income
Last year, I worked with a young lady that drove for one of the ride-sharing companies and got into a bit of tax trouble. It seems she never received a 1099 from the company and wasn’t aware that the money she made was taxable income, so she didn’t do a good job of tracking expenses. A couple years later, she received a notice from the IRS telling her she owed thousands of dollars in back taxes, interest, and penalties.
Fortunately, we were able to help her recreate her records enough to have some documented expenses to offset that income and get her tax bill lowered. But the situation just reinforced how little information many of these workers receive about the tax implications of the gig economy.
So I was excited to write this piece for Credit Karma Tax, providing step-by-step instructions for on-demand workers to file their tax return – for free! – using Credit Karma Tax.
All you need to do is sign up for a free Credit Karma account and follow the instructions to report business income from any 1099-MISCs and 1099-Ks you receive from any ride-share companies and any income you earned from ride-sharing work that wasn’t reported on a 1099.
If you know anyone working in the gig economy, feel free to pass this along!