Did you know that nearly 45% of Americans have a side hustle, but most of them totally screw up their taxes? Yeah, I learned that the hard way back in 2019 when I got my first little side gig doing freelance graphic design. I thought I was being super smart making an extra $12,000 that year, until tax season rolled around and I owed like $3,200 out of nowhere!

Look, if you’re hustling on the side—whether it’s driving for Uber, selling stuff on Etsy, or doing consulting work—you absolutely need to understand how taxes work. Otherwise, you’ll be that person (like I was) frantically Googling “can I go to jail for not paying taxes” at 2 AM on April 14th.

When Your Side Hustle Becomes the IRS’s Business

Here’s the deal: if you make more than $400 from your side hustle in a year, the IRS wants to know about it. That’s it. Four hundred bucks. I remember thinking “Oh, it’s just a little hobby money,” but nope—the government doesn’t care if you’re selling handmade candles or walking dogs.

The tricky part is that most side hustle income is considered self-employment income, which means nobody’s taking taxes out for you. When I was teaching full-time, my school took care of all that withholding stuff automatically. But with my design work? Crickets. It was all on me to set money aside, and boy did I NOT do that the first year.

The Self-Employment Tax Surprise (It Hurts, Not Gonna Lie)

This is where it gets brutal. On top of regular income tax, you’ve gotta pay self-employment tax, which is basically Social Security and Medicare taxes. It’s about 15.3% of your net earnings. Yeah, you read that right—before you even get to your regular income tax bracket!

I literally threw my calculator across the room when I first calculated this. My buddy who’s an accountant just laughed at me and said “Welcome to being your own boss, buddy.” The IRS self-employment tax rules are no joke, and they don’t care about your feelings.

Deductions Are Your New Best Friend

Okay, here’s where things get slightly less depressing! You can deduct business expenses from your side hustle income, which lowers what you actually owe taxes on. When I finally figured this out (year two, after hiring help), my taxable income dropped significantly.

Some stuff I’ve deducted over the years:

• Home office space (even just a corner of your bedroom counts!)
• Software subscriptions and tools
• Mileage if you drive for your side gig
• Marketing costs and website fees
• Professional development courses
• A portion of my internet and phone bills

Just keep your receipts, seriously. I use a simple app now, but my first year I had a shoebox full of crumpled receipts that I had to sort through like some kind of archaeology project. Not fun.

Quarterly Estimated Taxes (Yes, Really)

This one threw me for a loop. If you expect to owe more than $1,000 in taxes from your side hustle, you’re supposed to pay quarterly estimated taxes. That means you’re supposed to send money to the IRS four times a year—April, June, September, and January.

I completely ignored this my first year because I didn’t know it was a thing. Then I got hit with an underpayment penalty on top of everything else. The quarterly tax payment system seemed super complicated at first, but once I got into a rhythm, it actually made April way less stressful.

Nowadays, I just set aside about 25-30% of every side hustle payment into a separate savings account. It’s not perfect math, but it keeps me from having a panic attack every quarter.

Different Side Hustles, Different Tax Forms

Not all side income gets reported the same way, which is honestly pretty annoying. If you get a 1099-NEC form from a client (for $600 or more), that’s self-employment income and goes on Schedule C. But if you’re doing gig economy stuff through apps, you might get a 1099-K instead.

Then there’s random income that doesn’t come with any forms at all! Like if you sold your old guitar for more than you paid for it, technically that’s taxable. The whole system feels like it was designed to confuse normal people on purpose sometimes.

Your Next Steps (Before the Tax Man Cometh)

Look, I’m not gonna sugarcoat it—dealing with side hustle taxes is kind of a pain. But it’s way less painful if you’re proactive about it instead of reactive like I was. Set aside money from every payment, keep track of your expenses, and seriously consider using tax software or hiring a professional if your side hustle is bringing in decent money.

The beauty of having a side hustle is that extra income and flexibility, but you gotta play by the rules. Trust me, the stress of tax season isn’t worth the few bucks you might save by ignoring this stuff. Take it from someone who learned the hard way—twice, because apparently I’m stubborn.

If you found this helpful and want more real-talk money advice, check out more articles over at Money Mythos. We’ve got tons of content about making money, saving it, and not screwing up your finances like I did!