The Side Hustler’s Guide to Paying Taxes Without Crying (Much)
You’re passionate about your side hustle. Even if it’s not your main source of income, you take pride in your pet-sitting gig or your high customer-service rating as a rideshare driver. Most of the year, you’d tear up with joy thinking about adding another client to your freelance copywriting portfolio. But come tax time, you’re crying in frustration.
Let MoneyLion hand you a tissue and give you a gentle pat on the back. Filing taxes as a freelancer or side hustler can be complicated — but it doesn’t have to be ugly-cry complicated. We’ve compiled a guide to less stressful tax filing for enterprising people like you.
1. Treat Your Side Hustle Like a Business
Even if you think of selling crafts on Etsy or delivering for DoorDash as a way to make extra cash, it’s time to start regarding yourself as self-employed. The IRS certainly does, since income from gig work, freelancing or a part-time business is taxable.
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That means you’ll need to consider a few things:
You’ll likely receive a Form 1099-NEC or 1099-K, depending on how you’re paid and whether you meet IRS reporting thresholds.
Even if you don’t receive a form, you must report all income.
You may need to file Schedule C (Profit or Loss From Business) with your Form 1040.
Underestimating these requirements can lead to major tears at tax time. To stay dry-eyed, treat your side work like a real business from the outset by tracking income and expenses every month — ideally with separate bank accounts or bookkeeping software to keep personal and business finances distinct.
2. Look Out for the Self-Employment Tax
At a traditional job where you receive a W-2, your employer splits Social Security and Medicare taxes with you. When you’re self-employed, you pay both portions yourself. That’s the self-employment tax.
According to the IRS, “The self-employment tax rate is 15.3%. The rate consists of two parts: 12.4% for Social Security (old-age, survivors and disability insurance) and 2.9% for Medicare (hospital insurance).”
Keep in mind that the 12.4% Social Security portion applies only up to an annual income limit, while the 2.9% Medicare portion applies to all net earnings. High earners may also owe an additional 0.9% Medicare tax.
Don’t set aside money for income tax alone. Remember self-employment taxes, too. You can deduct the employer-equivalent portion, which is half of the self-employment tax, as an adjustment to income.
While a common rule of thumb is to reserve 25% to 30% of net income for federal taxes, your actual rate will depend on your total income, filing status and state taxes. Consider talking with a tax professional to get a clearer understanding of your specific situation.
3. Deductions Are Your Best Friend (if You Keep Receipts)
Plain and simple: Every legitimate deduction reduces both your income tax and your self-employment tax. And there may be more available than you think — provided you keep receipts and documentation.
Common deductions side hustlers rely on include:
Home office (if used regularly and exclusively for business)
Mileage using the standard mileage rate or actual vehicle expenses
Software subscriptions and online tools
Advertising and marketing
A portion of phone and internet bills
Supplies and equipment
Not too shabby — as long as you hold on to that documentation.
4. Quarterly Estimated Taxes Mean Fewer Tears in April
If you expect to owe at least $1,000 in taxes, plan to make quarterly estimated payments. Mark your calendar to pay in April, June, September and January.
If you don’t pay enough throughout the year, you could face penalties — even if you pay the full amount in April. To avoid penalties, you generally must pay at least 90% of your current year’s tax or 100% of last year’s tax (110% if your adjusted gross income exceeds certain thresholds).
Making quarterly payments softens the financial hit and helps you avoid surprise penalties.
5. Retirement Contributions Can Shrink Your Tax Bill
Being a side hustler doesn’t mean skipping retirement savings. Contributing to retirement accounts designed for self-employed workers — such as a SEP IRA or Solo 401(k) — may be tax-deductible, lowering your taxable income.
A SEP IRA allows contributions of up to 25% of net earnings, subject to annual limits. A Solo 401(k) lets you make both employee and employer contributions, which can allow higher total contributions — even at lower income levels.
These contributions can reduce your tax burden while helping you build long-term wealth. That’s definitely not something to cry about.
The Bottom Line
To paraphrase a classic song: Self-employed people don’t cry — at least not when they plan ahead. With careful tracking, smart deductions and timely quarterly payments, you might find yourself shedding happy tears at how manageable tax time can be.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal, or tax advice.
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