Whether they’re driving for Uber, walking people’s pets or freelancing online, side hustlers enjoy the benefit of some extra cash for bills, debt payoff and important savings goals. However, they also take on the added responsibilities and costs of handling their own taxes.
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As the year wraps up, side hustlers should look at their business situation to find ways to maximize their tax savings and enjoy a smoother tax filing experience. Here are six year-end tax moves to consider.
Review Important Documents and Records
Although 1099 tax forms typically don’t go out until late January, taxpayers should start locating invoices, bank records, receipts and other documents related to their side hustles now.
These documents can help estimate the year’s business earnings for tax planning purposes. Plus, they’re useful for identifying potential deductible expenses, which might require preparing further documentation like mileage logs.
Check Out: 7 Tax Loopholes the Rich Use To Pay Less and Build More Wealth
Consider Income Deferment Opportunities
Side hustlers can use smart income timing strategies to help defer income when they’re in a higher tax bracket. According to TaxAct, billing customers later may be an option, but holding off on cashing received checks isn’t. Side hustlers who have gigs that offer less control over payment dates might simply avoid doing work near the year’s end.
Another way to defer income is to make strategic pre-tax retirement contributions. Based on the 2024 IRS limits, a side hustler who has a traditional 401(k) at their day job can stash away as much as $23,000 — $30,500 if aged 50 or older — by Dec. 31, while someone with a traditional IRA can contribute up to $7,000 — $8,000 if aged 50 or older — by April 15, 2025. Side hustlers may also qualify for a personal tax credit for these contributions.
Handle Last-Minute Business Expenses
Since eligible business expenses reduce the side hustle earnings subject to taxes, being strategic about year-end purchases is a wise move. For example, if a side hustler has held off buying a work computer, hiring professional services or setting up a home office, doing so by Dec. 31 could offer tax savings.
However, side hustlers must review the IRS deduction rules that vary based on the expense category. For example, they may need to depreciate certain equipment over time or deduct only a portion of an expense attributed to both business and personal purposes. Plus, it’s best to avoid making nonessential purchases to save a little on taxes.
Catch Up on Quarterly Tax Payments
Side hustlers who will owe at least $1,000 in taxes should make sufficient quarterly federal payments or have enough withheld from their regular paychecks to avoid interest and penalties when tax time comes. Catching up now may not waive penalties for past insufficient payments this year, but it could prevent extra expenses and a surprise tax bill.
The IRS offers Form 1040-ES to calculate estimated federal tax payment amounts based on expected self-employment earnings. The deadline for the final quarterly payment for 2024 is Jan. 15, 2025. While side hustlers have options for paying these taxes online or by mobile app, the IRS also supports payments by mail or over the phone.
Reconsider Your Business Structure
Many side hustlers operate as sole proprietorships, since that business structure is the simplest. However, self-employment and income taxes are due on all business profits, so some side hustlers may prefer a different structure that could lead to a cheaper tax bill.
Per TurboTax, an S corporation allows small business owners to pay themselves reasonable salaries — with FICA taxes due — yet receive the remaining profits as distributions. Like with a sole proprietorship, personal income taxes would apply to profits. Plus, this structure offers personal liability protection. Drawbacks include more complexity and the requirement to file both personal and S corporation returns.
Consider Meeting With a Tax Pro
While the DIY approach can seem appealing for those on a budget, side hustlers should consider getting professional tax support. Not only can tax pros help with potentially complex tax returns, but they can also recommend money-saving strategies for next year.
Ultimately, the tax savings might exceed the cost of these services, which can even be a deductible business expense.
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This article originally appeared on GOBankingRates.com: 6 Smart Year-End Tax Moves for Side Hustlers
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