Everything you need to know about taxes when your side gig starts making real money. Deductions, quarterly filing, entity decisions.
“The best part of a side hustle isn't the extra income — it's all the deductions your W-2 job never gave you.”
The IRS presumes any money-making activity is a business (not a hobby) if it shows a profit in 3 of 5 years. Hobby income is taxable, hobby expenses are NOT deductible. Treat it like a business.
Common side hustle deductions: home office (even a desk in the corner), internet/phone (percentage of business use), software/tools, supplies, travel, education, professional development, marketing.
Check your withholding on your W-2 job first. Sometimes increasing withholding on your main job covers both incomes, avoiding quarterly filing. Use IRS Tax Withholding Estimator.
Entity decision: start as a sole proprietor (simplest). Move to an LLC when: (a) you have significant liability risk, (b) you're making $60k+ net, (c) you want the S-Corp election for SE tax savings.