Got a Full-Time Job and a Side Hustle? Let’s Talk Taxes

If you’ve got a full-time job and a side hustle, you might be wondering how in the world tax season works. You’re not alone. Many people juggle a regular job with a side business, whether it’s freelancing, consulting, or selling a product. Tax season rolls around, and the idea of filing taxes for both your W-2 job and your side hustle can feel like a nightmare.

But don’t panic! With a little know-how, you can navigate tax season with confidence. In this post, we’ll break down what you need to know about taxes when you have both a full-time job and a side hustle—and it’s not nearly as complicated as it seems.

The Basics: What You Need to File

Whether you’re a sole proprietor, LLC owner, or even running an S Corporation, the process boils down to just a few key forms. Let’s start with the basics.

1. Sole Proprietor or LLC

If your side hustle is structured as a sole proprietorship or an LLC (limited liability company), you’ll file your taxes as part of your personal return. This means you’ll still file your 1040 as usual, but with a few extra details to include.

W-2 Form: This is the form your employer sends you that shows how much you’ve earned at your full-time job. It’s straightforward—just like any other year when you only had a regular job.
Schedule C: This form is where you report the income and expenses from your side hustle. It’s attached to your 1040 and shows how much you made (or lost) from your side business. If you have expenses like office supplies, software, or travel costs, you can deduct them on this form to lower your taxable income.
Self-Employment Taxes: If you’re a sole proprietor or LLC, you’ll also need to pay self-employment taxes. These are the Social Security and Medicare taxes that are typically taken out of your paycheck when you work for someone else. As a business owner, you pay these taxes on your business income. But the good news is that you can deduct half of these taxes on your return, which helps reduce your taxable income.

This may sound like a lot, but the process is usually pretty smooth. All your income and deductions will be reported on your tax return, and as long as you’ve kept track of your side hustle finances, it’s just a matter of filling out the right forms. The key is keeping good records throughout the year.

2. S Corporation (S Corp)

Things get a little more complex if your side hustle is structured as an S Corporation. But don’t worry, I’m here to walk you through it.

An S Corp is a special type of business entity that allows you to potentially save on taxes, particularly when it comes to self-employment taxes. However, it requires a bit more paperwork, as you’ll need to file two separate tax returns:

S Corp Return (Form 1120S): The business itself needs to file an income tax return to report the income, deductions, and any business-related tax obligations. This form doesn’t result in taxes owed directly by you, the business owner, but it does need to be filed on behalf of the business.
K-1 Form: This form, which comes with the S Corp return, reports your share of the business income (or loss). You’ll use this to report your income on your personal tax return.
Your Personal Return (Form 1040): You’ll still need to file your personal tax return, just like with a sole proprietorship or LLC. But now, you’ll report the income you received from the business using the K-1. You’ll also pay any personal taxes owed on that income.
Self-Employment Taxes: With an S Corp, one of the biggest advantages is that only the salary you pay yourself is subject to self-employment taxes. Any remaining profit can be distributed to you as dividends, which are not subject to self-employment taxes. This could help you save a significant amount on your taxes.

Quick Tip: Don’t Forget That K-1 Form!

Whether you’re an S Corp owner or receiving income from another partnership or corporation, the K-1 form is critical. It’s how the business reports your share of the income or loss. If you don’t report this on your personal return, you could miss out on important income that should be taxed.

Note: It’s also important to remember that just because you might not be paying self-employment tax on the dividends, you still need to report them on your return. The IRS will know if you don’t report all of your income, and that’s not a situation you want to be in.

Common Tax Deductions for Side Hustlers

Now that we’ve covered the basics of filing taxes when you have a full-time job and a side hustle, let’s talk about some tax deductions that could save you money.

Here are a few common deductions for side hustlers:

Home Office Deduction: If you have a dedicated space in your home for your side hustle, you might be able to deduct a portion of your rent, utilities, internet, and other home-related expenses.
Business Expenses: Any expenses you incur directly related to your business are potentially deductible. This includes things like office supplies, software subscriptions, advertising, and professional fees (like legal or consulting fees).
Vehicle Expenses: If you use your car for business purposes, you may be able to deduct mileage or a percentage of your vehicle-related expenses.
Health Insurance: If you’re self-employed and pay for your own health insurance, you might be able to deduct your premiums.
Retirement Contributions: Contributing to a retirement account (like a SEP IRA or Solo 401(k)) can reduce your taxable income, while also helping you save for the future.

Tax Tips for Side Hustlers with Full-Time Jobs

Tax season doesn’t have to be a nightmare. Here are a few tips to help you stay organized and make sure you’re getting the most out of your tax return:

Separate Your Finances: It’s essential to keep your full-time job finances separate from your side hustle finances. Open a dedicated business bank account and keep good records of all business-related income and expenses.
Track Your Expenses: Use apps or software like QuickBooks or FreshBooks to track your income and expenses throughout the year. This will make filing your taxes much easier when the time comes.
Make Estimated Payments: If you’re self-employed and your side hustle is profitable, you may need to make estimated quarterly tax payments. This is to ensure you don’t owe a large amount at the end of the year and avoid penalties.
Consider Working with a Tax Professional: If you have a side hustle, taxes can get tricky. While many people can file on their own, a tax professional can help you navigate more complex situations, especially if you have an S Corp or are making substantial income from your business.

Could an S Corp Save You Money?

Wondering if switching your side hustle to an S Corp might save you some money? The answer depends on your situation. An S Corp can help you save on self-employment taxes, but it requires more paperwork and ongoing compliance.

If you’re thinking about making the switch to an S Corp, comment “S CORP” below, and we can chat more about whether it’s right for you.

Tax season doesn’t have to be stressful even if you’ve got both a full-time job and a side hustle. With the right knowledge, it’s just a matter of filling out a few forms and taking advantage of deductions that can lower your taxable income.

Remember, whether you’re a sole proprietor, LLC owner, or S Corp, keeping accurate records, filing the right forms, and seeking advice when necessary can make all the difference in having a smooth tax season. You’ve got this!