In today’s gig economy, side hustles are all the rage as a way to earn extra money. Whether you’re freelancing, driving for a rideshare company, selling handmade goods, or tutoring, it’s important to understand the tax implications of that additional income. But figuring out taxes for your side hustle doesn’t have to be complicated. Here are some tax tips to help you keep more of those hard-earned Benjamins in your side-hustling pocket.

1. Keep detailed records

Good record-keeping is the cornerstone of effective tax management. Maintain detailed records of all your income and expenses related to your side hustle. This includes invoices, receipts, mileage logs, and any other documentation that supports your business activities. Using apps like QuickBooks or Expensify can simplify this process and help you stay organized throughout the year.

Tip: Create a new bank account for your side hustle to keep your personal and business finances separate. This makes tracking income and expenses easier and more accurate.

2. Understand your tax obligations

When you earn money from a side hustle, you’re considered self-employed. This means you’re responsible for paying self-employment taxes, which cover Social Security and Medicare. In addition to federal income tax, you may also owe state and local taxes, depending on where you live.

Tip: Estimate your tax liability and set aside a portion of your income each month to cover these taxes—you definitely don’t want to be caught off guard when it comes to paying that tax bill. Aim to save about 25-30% of your side hustle income to make sure you can meet your tax obligations without stress.

3. Make quarterly estimated tax payments

If you expect to owe more than $1,000 in taxes from your side hustle, the IRS requires you to make quarterly estimated tax payments. These payments help you avoid penalties and interest charges for underpayment of taxes. The due dates for estimated tax payments are typically April 15, June 15, September 15, and January 15 of the following year.

Tip: Use Form 1040-ES to calculate and make your estimated tax payments. Set reminders for each payment deadline to make sure you don’t miss any.

4. Deduct your business expenses

One of the advantages of having a side hustle is the ability to deduct business expenses from your taxable income. Common deductible expenses include:

– Home office: If you use part of your home exclusively for business, you can deduct a portion of your rent or mortgage, utilities, and internet.

– Supplies and equipment: Deduct the cost of materials, tools, and equipment necessary for your side hustle.

– Mileage and travel: If you drive for your side hustle, keep a log of your business-related mileage. You can deduct a standard mileage rate or actual expenses like gas and maintenance.

– Marketing and advertising: Costs related to promoting your business, such as website fees, business cards, and advertising, are deductible.

Tip: Only deduct expenses that are ordinary and necessary for your business—otherwise, you could trigger an audit. Keep receipts and detailed records to substantiate your deductions in case you are audited.

5. Get help from a professional

Taxes for side hustles can be complex, especially as your business grows. Consulting with a tax professional can help you make sure you’re taking advantage of all available deductions and credits while staying compliant with tax laws. They can also help you plan strategically for future tax years.

Tip: Consider working with a Certified Public Accountant (CPA) who specializes in small businesses or freelancers. Their expertise can save you time and money in the long run.