Taxes and Financial Considerations of a Side Hustle

Community Manager
Community Manager
230 Views

package.png

 

By Steve Jacobs

 

The sharing economy is real.

 

You, or someone close to you, has probably at least dipped a toe in the water of a side hustle – a way to make money in addition to your salary – whether it’s driving for a ridesharing service, renting out a spare room or any of the other opportunities that have popped up.

 

As you decide whether this side income thing is right for you, you may be wondering, “Are there things I should be considering financially that maybe I haven’t considered yet?”

 

The answer is yes, there are. We’ll tackle some of the more common issues to consider when you’re working one of these jobs.

 

Paying Taxes

 

This is the most important thing to keep in mind: If you receive money from a sharing economy activity, it’s very likely taxable, even if you didn’t get a tax form.

 

You should be keeping records of everything you can. Some of the more well-developed apps, like Uber or Airbnb, may provide you with an earnings statement detailing what you’ve made, but that’s about the most you can expect.

 

According to Robert Steen, director of retirement advice and complex financial planning at USAA, “You’ll need to be a little more hands-on with your taxes, since no one will be doing any withholding for you throughout the year.”

 

Luckily, the IRS recognizes the prevalence of these side hustles and has developed a Sharing Economy Tax Center on its website. Here you’ll find answers to the most common questions, such as what forms to fill out on your personal taxes, what you can write off as a business expense and when you need to file.

 

Using Your Personal Property

 

There are many out-of-sight, out-of-mind–type expenses that go into side hustles.

 

● If you use your personal property to make money, that property will depreciate at a faster rate.

● Paying out of pocket for advertising costs means being out that money until your business becomes profitable.

● Getting higher insurance coverage might be necessary, depending on whether you’re taking customers’ safety into your hands through driving them, hosting them, feeding them or whatever you may be providing as a service.

● And what if the quality of what you’re selling suffers when you have to make it in greater quantities? Loss of reputation is something to think about as well.

 

This is especially true of the various ridesharing applications. A car is typically one of the most valuable pieces of property people own. Think about the costs involved with putting extra miles on your car, the potential for damage or messes to the inside of the car, the added repairs that might be needed. Then consider how you’re opening yourself up to personal risk.

 

These types of concerns might not come into play right away, but they will if you do this side job for long enough.

 

What’s Your Time Worth?

 

This is where it gets a little meta. Are there time commitments you’re sacrificing in return for the income you get? Would your time be more valuable if you used it to go back to school? Are you less productive at your other work because of the income you’re making on the side? Are you taking more time away from your family? Does it affect your work-life balance?

 

Steen says you need to ask yourself all of these questions, but most important: “Why are you doing this? Do you need the few extra bucks? Are you bored? What’s your motivation?”

 

If the motivation isn’t for a pressing need, the time might be best spent in another, less complicated way that might lead to full-time employment down the road.

 

Steen says it best: “When it comes to income, a W-2 is hard to beat, since someone else is doing the logistics for you.”

 

These are just a few of the financial considerations when weighing the merits of a side hustle. Everyone wants to be in business for themselves, and people can be very happy and make a living doing a lot of different things. Just remember, as with all professional endeavors, think to yourself: What’s the business plan?

 

If you’re thinking of starting to drive as your own side hustle, check out USAA’s rideshare coverage.

 

 

267005 - 1119