Adding a second source of income might have a significant impact on your overall financial situation. For starters, with the rising cost of living, having a little more cash on hand might make paying the bills a little simpler (thanks, inflation). You may be able to save more, pay down debt, and set aside funds for specific purposes, such as a down payment on a house or car.
To be successful in a side hustle, you’ll need to exercise caution when handling your money. Once the second gig has begun, you may want to consider making the following three changes.
The first step is to begin paying the estimated taxes that you owe
As you earn money, you must pay taxes to the IRS. Because of this, you’ll see that taxes are deducted from your paychecks.
The money you make from your side hustle won’t be taxed because it’s a freelance job. Instead, you’ll have to foot the bill for the tax burden. There are penalties for failing to pay the IRS on time if you end the year with an excessive amount of unpaid taxes.
Your side hustle profits are taxed quarterly, so you may want to begin paying quarterly taxes on them as soon as possible. You can use internet calculators to figure out how much to pay, or you can seek the advice of an accountant.
Keep track of your company’s expenditures
When you work for yourself as a freelancer, you can deduct the costs you expend to carry out your duties. For tax purposes, it’s critical to keep accurate records of these expenses.
Let’s say you’re a self-employed tutor who specialises in arithmetic. It’s possible to deduct the cost of driving to and from their houses because it’s a need of the side job. However, if you want to claim a tax deduction for your gas mileage or parking costs, you’ll need to keep track of those expenses.
Consider using a separate business credit card
If you use a single credit card for all of your side-hustle expenses, it may be easier to keep track of your personal spending. For those who run a side business, it’s worth looking into business credit card options. Open a standard credit card instead and use it just for company expenditures.
Adding a second source of income might have a significant impact on your overall financial situation. Keep an eye on your finances, though, as they pertain to that job. That way, the IRS won’t have a problem with you. When it comes to avoiding an IRS bill that you can’t pay come tax season, this is a crucial consideration.
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