How to File Taxes for Your Side Hustle: 10 Best Tax Tips

If you have a small business side hustle, you likely have questions on how to file taxes for your small business side hustle. Filing taxes as a side hustle small business owner can be complex, but it is an important responsibility to ensure compliance with tax laws and to benefit from any potential tax deductions and credits.

Here are my 10 best tips, summarized quickly, to give you a general idea on how to get started.

At the end, and I’ll share with you information on a great comprehensive resource, to help you to file taxes for your side hustle.

Hi, I’m Noel Lorenzana, Registered CPA. 

If you have a small business side hustle, you will need to report the income and expenses from your side business on your tax return. Here are some steps to follow when filing taxes for your small business side hustle:

1. Gather your documents:

The first thing you'll need to do is gather all the documentation you'll need to file your taxes. This includes income and expense records, bank statements, receipts, and any other relevant documents. It's a good idea to keep track of these throughout the year to make the tax filing process as easy as possible. I can’t stress this enough, but good record keeping is essential to ensure that you’re paying no more in taxes than you legally owe and that you protect yourself in the event of an IRS audit.

2. Determine your business structure:

The type of business structure you have (for example: sole proprietorship, partnership, or corporation) will affect how you file your taxes. You'll need to determine which business structure applies to your side hustle. By default, it’s taxed as a sole proprietorship, and with that, your side hustle income and expenses are reported on schedule C, profit or loss from business on your personal tax return. If you’re taxed as a partnership or a corporation, then do know that it may require the filing of a separate business tax return.

3. Choose a tax filing method:

You actually have the option to file your taxes using either the cash or accrual method of accounting. Generally, the cash method of accounting is the best choice for side hustles. The accrual method is more complex, and is better suited for corporations, in my opinion. It requires some knowledge of accounting, but it does more accurately match up with the economic activity of business transactions. So, think about which method is best for your side business.

4. Claim deductions and credits:

As a side hustle small business owner, you want to claim all the deductions and credits that are available to you so that you can reduce your tax liability. These may include the home office deduction, self employed health insurance deduction and the vehicle mileage deduction. If applicable, be sure to claim these on your tax return. These deductions can be used to directly reduce your taxable income. 

5. File and pay your taxes:

You'll need to file your tax return, and pay any taxes owed, by the appropriate tax filing deadline, which is generally April 15 for those taxed as sole proprietors. You can either use tax software or hire a professional to help you with this process. For the best results I always recommend working with a tax professional. But if you know how to prepare your own taxes, then keep doing so. Maybe just have your returns reviewed by a professional periodically.

6. Keep good records:

It's very important to keep good records of your side hustle business in case you're ever audited by the IRS. This includes keeping track of income and expenses, as well as any documentation supporting your deductions and credits.

7. Report all of your income: 

It is important to report all income from your side hustle on your tax return, even if you didn’t receive a 1099K tax form. Just know that you shouldn’t rely on tax forms to determine your taxable income. You need to keep your own records and report your income on your tax return, whether you receive a 1099 tax form or not.

8. Keep track of business expenses: 

You can deduct certain business expenses on your tax return to reduce your tax liability. These may include supplies, equipment, travel expenses, business meals, and other expenses related to your side hustle. Be sure to keep receipts and other documentation to support your deductions.

9. Consider hiring a professional:

Filing taxes as a small business owner can be complex, especially if you have a side hustle in addition to your regular job. Consider hiring a professional tax preparer or an accountant to help you with the process. Check out this video up here if you want my five best tips on finding a good tax preparer.

10. Plan for estimated taxes: 

If you expect to owe more than $1,000 in taxes, you may need to make estimated tax payments throughout the year. These are filed or reported on Form 1040-ES, and you can make payments at the IRS website at IRS.gov/payments. Knowing how much you need to pay in estimated taxes is the tricky part, and that’s where a proper accounting system comes into play.

Consult with your tax professional or refer to the IRS website for specific information on filing taxes for a small business side hustle.

This was a brief summary, but I do have a full course which you can sign up for, which covers in depth, everything you need to know on how to file taxes for your side hustle. It will take you from zero to hero and answer all of your questions. You can see more by clicking here.

Let me know if you have any questions. 

Thanks for reading and see you in the next blog post!