Side Hustle Taxes Part I: Reporting Income & Expenses, and Understanding Deductible Business Costs
So you have a side hustle and you're probably confused about how to pay taxes on your side hustle income.
Am I right?
Navigating the tax landscape with a side hustle can be confusing, but you've come to the right place! This is a three-part series designed to demystify the tax implications of your side hustle and this one is number one of three. And in this blog post, I'll break down where to report your income and expenses on your tax return. I'll also guide you as to what you can—and can't—deduct as a business expense.
Sound good?
By the way for those of you who don't know me, my name is Noel Lorenzana. I'm a CPA with over 25 years of experience. I'm here to help folks with side hustles like you demystify taxes and get a handle on their finances.
Where to Report Side Hustle's Income And Expenses on Tax Return?
For those with a side hustle, you're typically taxed as a sole proprietor, and your income and expenses would then be reported on Schedule C of Form 1040, Profit or Loss From Business.
Here, you list all the income you've earned from your side hustle and deduct any relevant expenses.
After completing Schedule C, the Net Profit or Loss is then transferred to the main tax form, Form 1040. It's important to keep detailed records of both your income and expenses throughout the year to make this process as smooth as possible.
Now, if your side hustle is structured as a different type of business, such as an LLC taxed as a partnership or corporation, the tax reporting will be different. Always consult with a tax professional if you're unsure.
What Can You Deduct as a Business Expense for Your Side Hustle?
For your side hustle, you can deduct a variety of expenses as long as they're both ordinary and necessary in your type of business.
Here are some common deductions for your side hustle business.
- The Home Office Deduction. If you use part of your home exclusively and regularly for your side hustle, then you might qualify for a home office deduction.
- Supplies and Equipment. Cost for things like computers, software, office supplies, and any tool specific to your side hustle.
- Advertising and Marketing. Cost for promoting your side hustle, be it through ads, flyers, or online platforms, these are deductible.
- Travel and Vehicle Use. If you travel or use your car for your side hustle, certain expenses can be deducted, like mileage, gas and maintenance.
- Professional Fees. Fees you pay to lawyers, accountants, consultants or other professionals are typically deductible.
- Training and Education. Costs related to improving skills directly related to your side hustle, such as workshops or courses, licenses and permits, any required licenses, permits, or fees associated with running your side hustle.
Remember, it's important to keep detailed records and receipts for all of your expenses. While these are some of the common deductions, this list isn't complete by any means. Depending on the nature of your side hustle, there might be many other deductions. It's best to consult with a tax professional to ensure that you're maximizing your tax deductions.
Did I deliver on my promise? I really hope I did.
FREE Ebook: Ultimate Guide to Side Hustle Taxes
As my way of saying thank you for taking the time to read my blog post, I have a special gift for you. It's my ultimate guide to side hustle taxes. It's packed with tons of information and a downloadable PDF that you could download for free.
Go grab that while you're thinking about it. Thank you so much and see you again soon!
