ROSEVILLE, Minn. — Over the past two years, there’s been an increase in people picking up side hustles. According to software company Zapier, 40% of Americans had a side hustle in 2022, up from 34% in 2020.
But if you became your own boss last year, even if it’s just for partial income, it’s important to know that filing your taxes is going to look a lot different.
Alan Holasek owns and operates Green Room Tax Service out of Roseville, preparing taxes primarily for people with a day job as well as a creative side hustle like acting or filmmaking. One of the first things he said self-employers should be aware of is the three types of taxes they’ll be filing: state, federal, and self-employment.
“If you’re an independent contractor, it’s not going to be like a regular day job where your employer is withholding your tax from your paycheck,” Holasek said. “You are responsible for making sure that you are paying that tax, and you are paying that on time.”
So if you started your hustle in 2022 and want to minimize what you’ll owe, first research what qualifies as a business expense. If you’re an actor, a theatrical, period costume can qualify, as well as a headshot and a portfolio website. Things like mileage and home office space may be able to be deducted. However, not all deductions are equal – some items can only be partially deducted. That’s where it’s important to do your research or speak with a tax professional.
“When you’re dealing with self-employment, the options for deductions and reducing the amount of tax you have to pay, they definitely grow,” Holasek said. “But the complexities also grow as well.”
Gather all the physical receipts you’ve saved and if you purchased something online, put the email receipts into an email folder. Then record your expenses in a document like an Excel spreadsheet. Also, be sure to record your income as well.
“Keep track of your earnings, keep track of your expenses and take advantage of those expenses,” he said.
When it comes time to file, self-employment deductions will be entered on a Schedule C form.
Holasek said it’s best to start the year off with diligent bookkeeping, especially if you plan to continue your side job into this year. He suggests getting a manila envelope, writing “Taxes 2023” on it, putting it somewhere safe and storing the receipts inside each time you incur an expense.
“Then in addition to that, you can use an Excel spreadsheet where you are keeping track of your income and your expenses,” Holasek said. “That way, instead of having to go through all your receipts at the end of the year and trying to calculate, you can just go to the excel spreadsheet, just do ‘auto-sum’ and boom – you got the bottom line totals for all your expenses in all these different categories for the year.”
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