Having a side gig is great, but the tax part can sneak up on people. When you work for yourself, nobody takes taxes out of your pay. If you’re not setting money aside or keeping track of your expenses, you can end up with a surprise bill at the end of the year.
Here are the basics people with side gigs need to know and the steps they should take to stay ahead of taxes.
Track Every Dollar You Earn
Side-gig income gets reported differently. Whether you drive for Uber, deliver for DoorDash, sell online, or do freelance work, your earnings count as taxable income.
Platforms might send you a 1099-NEC or 1099-K, but even if they don’t, you still have to report the money. Keep a simple list of everything you make:
- Payments from apps
- Cash jobs
- Zelle, Venmo, or Cash App payments
- Sales from online marketplaces
The IRS doesn’t care how you got paid. If you earned it, you need to report it.
Keep Your Receipts and Business Expenses
With side gigs, you can deduct expenses you paid to keep your work going. This lowers your taxable income.
A few common examples:
- Gas or mileage if you drive for work
- Phone bill (the work portion)
- Supplies, equipment, or tools
- Software or apps you use for business
- Marketing or website costs
- Tolls and parking
- Home office space (if you have a dedicated area)
You don’t need fancy software. A folder on your phone or a simple spreadsheet works fine.
Put Money Aside for Taxes
Since no one is withholding taxes for you, you need to put money away on your own. A good rule is:
Save 25% to 30% of your side-gig income
That usually covers federal taxes, California taxes, and self-employment tax. It’s better to save too much than too little.
If you don’t save throughout the year, you could end up owing more than you expect when you file.
Make Quarterly Tax Payments to Avoid Penalties
If you have a steady side income, the IRS expects you to pay taxes during the year, not just when you file.
You may need to make quarterly estimated tax payments in:
- April
- June
- September
- January
This helps you avoid penalties and keeps the tax bill manageable.
Understand Self-Employment Tax
Self-employed people pay an extra tax for Social Security and Medicare. When you work for a regular employer, those taxes come out automatically. With a side gig, you’re responsible for paying them yourself.
Self-employment tax is 15.3%, and it’s one of the main reasons people with gig income end up surprised at tax time.
Separate Your Money
If you want to stay organized, open a separate bank account only for your side-gig money.
Use it for:
- Getting paid
- Buying work-related items
- Saving for taxes
It makes tax time easier and helps you see if your side gig is actually profitable.
Know When a Side Gig Becomes a Small Business
Some people start small but grow fast. If you’re bringing in consistent money, you might want to look at forming an LLC or choosing a tax election like an S-Corp later on. It depends on your income and your goals.
But you don’t need any of that to start. Many people file as sole proprietors and adjust later as things grow.
When to Ask for Help
If your income jumps, you get multiple 1099s, or your bookkeeping is getting messy, it’s smart to get help. A tax professional can tell you which deductions apply and how much you should save.
A short meeting can save you a lot of stress and money at the end of the year.
How Local Tax Can Help You
Local Tax works with freelancers, gig workers, and small business owners across Los Angeles County. If you have a side gig, we can help you:
- Organize your income and expenses
- Understand which deductions you qualify for
- Estimate how much to set aside for taxes
- File your return correctly and avoid common mistakes
- Set up a payment plan with the IRS if you owe
- Get clear answers on California tax rules
You can call (562) 925-2203 to schedule an appointment or visit our office at 9429 Somerset Blvd, Bellflower, CA 90702. Whether you’re earning a little extra or running a growing side business, we’ll help you stay on track and avoid surprises at tax time.
