(This is a guest contribution from Lauren Bowling @ L Bee and the Money Tree)
Having a “side hustle” is the best thing ever. It gets even better if you get to conduct said side hustle from the comfort and privacy of your own home, as many bloggers and creative freelancers get to do. Having the extra income was a god-send this year as I purchased my first home, began renovating it, and needed to start saving for a wedding. However, my side hustle also caused a lot of headaches for me this year, since I wasn’t always sure of what I was doing when it came to setting things up for tax season.
The In’s and Out’s of Side Hustle Income
Last year, I made a total of $1500 for the three months I operated my blog for cash. This year I made close to $15k. Not a huge deal since I was operating as a sole proprietorship, but when I bought my house, I LLCed my writing endeavors as a means to protect my assets. Not that I think anyone is going to sue me over my writing projects, but you get the idea.
Getting an LLC from the state of Georgia (where I live) wasn’t a big deal. It cost me around $100 and I filed online. Since I operate the LLC as a single owner, I still file my taxes the way I would as a sole proprietor on my personal income tax return, but I have the extra protection for my assets.
Well that worked out well!
Four Tax Tips for Side Hustlers
Keep obnoxiously detailed records—This was my only saving grace this year as I kept receipts (both paper and digital) and kept them in one easy-to-locate place all year long. Set up a separate folder in your inbox for those electronic business receipts like via paypal or when you pay a merchant online. I have one for my expenses and one for my invoices when they were paid. Then keep a P+L log in Excel on your computer. It doesn’t have to be overly detailed, but it is easier to start one at the beginning of the year than to go back and spend time compiling one at the end of the year.
Get a formal accounting system—If you are operating a simple side hustle: where you are the only one working and your overhead expenses are relatively low, it can be tempting to not pay a monthly expense for a formal accounting system. Still, the money is well worth it, as you get to have all of your business accounting in one place, which can make it much easier come tax time.
Have a separate savings account—This will come in handy when you are saving for those quarterly taxes. I have a friend who keeps her 15% in her Paypal account. Or you can get really fancy and set up a business account with a bank and keep your tax savings completely separate from your personal savings. I recommend this approach, but then again, I have very little restraint.
When in doubt, hire a professional— Starting a business and buying a home in one year is a lot, and I didn’t want to leave it to chance and do something wrong that I would regret later. I asked around and ended up hiring my parent’s accountant to do my taxes for me this year. Having that personal “in” has allowed me to pick his brain on a lot of things, for which I have been grateful. It may cost you some money, but accountants are experts, which means they can save you money in the long run too.
Lauren Bowling is the blogger and editor behind L Bee and the Money Tree, a personal finance site that explores the link between finances, lifestyle and self-esteem. She works full time as a marketing professional in Atlanta, and in her spare time as a freelance writer whose work and financial advice has been featured on Yahoo! Finance, Money Talks News, AOL’s Daily Finance, and Credit.com
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