For the most part, no one enjoys doing their taxes. Even when it is the simplest possible tax preparation, only involving a single W-2, tax prep can still feel daunting.
Now imagine that you had, say, a dozen W-2s for your tax return. If you are a follower of the most recent workplace trends, which focus on ideas such as remote work, freelance endeavors, flexibly, work/life balance, and side hustle gigs, this is likely your reality.
Even if you only made $600 over the course of a year on a particular side job, this income must always be accounted for and reported to the IRS. In some ways, having a wide range of jobs can actually hurt you financially. This is because oftentimes extra sources of income can be detrimental to your tax return if you aren’t careful!
But don’t let the anxieties or even fears of tax time channel into something that detracts from motivation. If you desire more work and more money, there are legal ways to avoid feeling ripped off around tax season.
Last month, I wrote a BIZCATALYST 360° article about finding financial freedom through working side hustle gigs. As an avid side hustler myself, I felt it necessary to write a part two on this subject, focusing this time on ways to make side jobs worth it, in regards to taxes.
In order to fully experience the positive qualities of side hustle work, you must be careful to calculate and account for your expenses in the form of tax deductions, tread lightly in unfamiliar waters, and always have concrete proof of what you’ve earned and spent.
All the Deductions!
Tax deductions can usually be a savior for your taxes! This is especially true for those working multiple jobs, working from home, or pursuing freelance work. In order to identify what deductions should be tracked, start by asking yourself as many questions about your life and your work as possible.
Did you relocate due to work, or move to a place that causes you to commute heavily? You may qualify for moving expense tax deductions.
Are you working from a home office? You can likely deduct many more expenses than you thought possible just by working from home.
If it’s relevant to your job, odds are that you can somehow write it off as a deduction in a totally legal way. But this requires a lot of personal accountability and some research. Tracking all of these expenses can be a lot to remember.
An illustrated guide to tax deductions, courtesy of QuickBooks, will help you rewire your thought process on the things you already pay for. After navigating this resource, you’ll learn more about tax deductions and how they are relevant to you personally. You’ll be able to make wiser purchases for your work needs, which literally pays off!
Furthermore, here are some typical tax write offs that many people overlook:
Items and purchases exclusively used for operating your business: this could be business related insurance, workspace overhead costs, the costs for business cards, online promotion, or even common office supplies.
Food, drinks, and travel expenses over the course of doing business: such as business lunch meets, travel to expos or trade shows, and other entertainment costs relevant or necessary to your business or work.
Additional examples of tax deductions are as follows: utility costs for home office use, mileage tracking when driving while clocked into work, computer purchases or repairs, or related education (not just college education).
On top of this, be certain that when you track deductions, you are doing so all year long! This will help you define a rhythm and leave no receipt left behind!
On top of becoming well-versed in all of the money saving tax deductions out there, it’s a great idea to be on top of tax laws as well as tax law updates, as these laws are fairly fluid and always changing. You’ll always want to make sure that your deductions and tax preparation techniques are absolutely legal. The last thing you want is to receive a scary letter from the IRS in the mail!
Don’t Get In Over Your Head
Sometimes it’s easy to get carried away with the side hustle. Properly balancing multiple jobs will make multiple angles of work more feasible. Don’t get carried away, especially at first. You want your side hustle to only influence your finances in a positive way. This advice is especially important when starting a fresh side hustle gig or self-motivated side job — don’t get in over your head!
For example, if you wanted to start a side business making printed t-shirts, the initial cost for screen printing setups, drying racks, shirts, ink, and other supplies can quickly reach thousands of dollars. Try to take a unique, cost-effective spin on whatever it is you are pursuing, especially at first. In this hypothetical example it may be more advantageous to start out by utilizing a cheaper method of shirt production, such as heat transfer printing. If you business takes off, consider investing your profits in a more refined approach once you are well established. Consider calculating your internal rate of return (IRR) beforehand as well.
No matter what your startup cost or IRR, you can deduct the costs for supplies so long as you remember to keep track of your receipts!
Save Your Proof
It’s worth reiterating that tracking deductions persistently is key! This needs to happen all-year long, with any purchase that may be deductible. The main way to do this is by saving all receipts that seem at all relevant, even if only tangentially.
Paper receipts are easy to misplace, but do your best to keep track of them in a delegated place. If given the option of a digital, emailed receipt, keep track of these just as carefully. Consider marking all receipt emails as important and make a special section in your inbox for these type of digitally-based purchase trails.
No matter what you do, it just makes sense to cover all of your work-related bases. While side-hustle situations are unique from person to person, odds are that you can financially benefit from honing in on your purchases and deducting expenses in an intelligent way!