20 Tax Tips for Side Hustlers and Gig Workers
Tax season can be incredibly stressful for gig workers and people who do side jobs because their income isn't always stable and is hard to report. You can save money and time by learning about taxes if you are a freelancer, contractor, or small business owner.
- Tricia Quitales
- 6 min read
If you do freelance work or have a side job, you need to make sure you do your taxes right, so you don’t miss out on deductions or get fined. This article has 20 useful tips that can help you avoid making common tax mistakes and save money. These tips can help you stay organized, pay less in taxes, and plan for a smooth tax season, no matter how long you’ve been freelancing or how new you are to it.
1. Keep Detailed Records of All Income
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To file your taxes correctly, you must keep track of your income. Whether you get paid in cash, by check, or electronically, keep track of them. To keep track of invoices and payments, it’s also helpful to write down the date and the client.
2. Save for Taxes Throughout the Year
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Don’t wait until tax time to pay your taxes; instead, set aside some of every payment you get. This will help you pay your tax bill and keep you from worrying about money. Generally, about 25% to 30% of your income should be set aside for taxes.
3. Understand Self-Employment Tax
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People who work for themselves must pay the employee and employer portions of Medicare and Social Security taxes. This is called the self-employment tax, and it takes 15.3% of your net income right now. When you plan your taxes, make sure to take this into account.
4. Deduct Business Expenses
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You can deduct many business-related costs in your side job, such as software, supplies, and marketing expenses. Make sure to keep track of these costs and keep receipts. Your taxable income will go down because of these deductions. This could mean that you owe less in taxes.
5. Home Office Deduction
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You might get a tax break for having a home office if you work from home. You can deduct some of your rent or mortgage, utilities, and home maintenance costs based on the size of your office space. Make sure that your office is exclusively used for business.
6. Separate Business and Personal Finances
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Keeping your business and personal finances separate will make tracking your income and expenses easier. Set up a separate bank account and credit card for your business. This will keep things clear and ensure that you claim the correct deductions.
7. Keep Track of Mileage
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You can write off the mileage if you use your car for business. Write down the date, destination, and reason for every business-related trip you take. You can use the standard mileage rate or deduct the actual costs.
8. Use Tax Software or Hire a Professional
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Tax software can make filing your taxes easier and help you make sure you don’t miss any deductions. If your tax situation is complicated, you can hire a tax expert. They can walk you through the process and help you get the most money back or the least amount of money owed.
9. Pay Quarterly Estimated Taxes
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Self-employed individuals usually have to pay their taxes every three months. If you think you’ll owe more than $1,000 in taxes, pay them every three months to avoid fees. Set alerts to ensure you pay on time and avoid late fees or interest.
10. Maximize Retirement Contributions
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You may pay less taxes if you put money into a retirement account like an IRA or a SEP-IRA. Because these contributions are tax-deferred, you won’t have to pay taxes on them until you take the money out. You can save for retirement and lower your tax bill at the same time.
11. Track Your Freelance Earnings Carefully
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Remember to keep track of all the money you make as a freelancer from direct clients and third-party platforms. Make sure to get 1099 forms if you need them. If you keep good records of all your income, you won’t miss any taxable income.
12. Deduct Education and Training Costs
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Most of the time, you can deduct the cost of courses you take to improve your skills for your side job. This includes fees, books, and other supplies. You can invest in your future and lower your taxable income simultaneously with this deduction.
13. Set Aside Funds for Self-Employment Taxes
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Self-employed individuals also have to pay local taxes on top of federal and state taxes. Make sure you keep track of the specific rules for your area. You can avoid unpleasant financial surprises in the future by setting aside a portion of your income for these local taxes.
14. Claim Depreciation for Equipment
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As a business owner, you can deduct some of the cost of big-ticket items like computers and cameras over several years. Depreciation is the word for this; it helps you pay for things over time and lowers your taxable income.
15. Understand State and Local Tax Laws
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Tax rates vary by state and city, which can affect you. Find out the rules in your area to ensure you’re following them all. In many states, self-employed people have different tax rates, so don’t forget about this.
16. Deduct Business-Related Travel Expenses
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You can deduct your travel costs, such as food, lodging, and flights, if you have to travel for work. Keep records and receipts for all the money you spend on travel. These costs don’t take long to add up and help you lower your taxable income.
17. Monitor Your Tax Deductions Regularly
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Check your expenses often to ensure you’re deducting everything allowed. Pay close attention to small deductions because they can add up over time. This ensures you don’t miss out on any benefits you’re entitled to, which could lower your tax bill.
18. Save All Receipts for Business Expenses
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Keeping receipts for everything you buy for your side job is important. They will protect you in case of an audit and serve as proof of your deductions. Sort them into groups to make tax time easier.
19. Consider Forming an LLC
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Setting up a Limited Liability Company (LLC) can help lower taxes and protect your assets from business debts. It also gives you more tax breaks and helps you set up your business in a way that saves you money on taxes. Talk to a tax expert to determine if an LLC is right for your business.
20. Stay Informed on Tax Law Changes
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Paying taxes can be difficult for freelancers and gig workers because tax laws change constantly. It’s important to stay informed about the latest tax rules and laws to avoid mistakes and get the best tax return possible. The best ways to get the most up-to-date information are through websites, webinars, or talking to a tax expert.