3 Important Financial Moves to Make if You Have a Side Hustle
- Having a side hustle means having to keep close tabs on your earnings and expenses.
- You may also need to pay taxes quarterly.
Check these off your list once you take on a second job.
Getting a side hustle could do a lot of great things for your financial picture. For one thing, that extra money could make it easier to keep up with ongoing bills at a time when living costs have gotten more expensive (thanks, inflation). It could also make it possible for you to build more savings, pay off your credit cards, and sock money away for specific goals, like buying a house or putting a down payment on a new car.
But if you're going to get a side hustle, you'll need to be careful with how you manage your earnings. Here are three important moves you may want to make once that second gig is in full swing.
1. Start paying estimated taxes
The IRS requires you to pay taxes as you earn money. That's why you'll notice you have taxes taken out of every paycheck you get.
If your side hustle is a gig you do on a freelance basis, you won't have taxes withheld from your earnings. Instead, it'll be on you to pay those taxes. If you don't submit them to the IRS as you go, you could face penalties if you close out the year with too much of an underpayment.
That's why you may want to start paying quarterly taxes on your side hustle earnings in April, June, September, and January. There are online tools you can use to determine how much to pay, or you can consult an accountant for help.
2. Keep good records of business expenses
When you work on a freelance basis, you're allowed to deduct the expenses you incur that make it possible to do your job. It's important to keep solid records of those expenses so you know what to claim on your taxes.
Say you have a freelance gig that involves tutoring students in math. You can deduct the cost of traveling to and from their homes, since it's a cost you have no choice but to incur in the course of doing that side work. But you'll need to keep records of your gas mileage or parking fees if you want to claim those items as tax deductions later on.
3. Consider getting a separate credit card for business purposes
It may be easier to track your side hustle-related spending if you charge all of those expenses on a single credit card and keep your personal expenses separate. If you own a business as your side hustle, it pays to see if there are any business credit card offers you can benefit from. Otherwise, you can open a regular credit card and earmark it for business purchases only.
Getting a side hustle really could change your financial picture for the better. But it's important to keep solid tabs on your finances as they relate to that gig. That way, you can avoid problems when it comes to the IRS. Just as importantly, you can potentially avoid a scenario where you end up with a huge IRS bill on your hands that you can't pay come tax season.
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