Take a fresh look at your lifestyle.

The Best Tax Breaks For Side Hustlers This Year

0


Side hustling offers a perfect opportunity for many people to earn more money, expand their skills, and explore creative career directions. But side hustling typically leads to more complex tax filing. People who aren’t accustomed to the complexities of self-employed tax filing may skip out on valuable tax deductions and credits. 

If you’re a side hustler, you may qualify for deductions or credits designed for self-employed people. Skipping out on these deductions could mean leaving extra money with Uncle Sam. These are a few frequently overlooked deductions for side hustlers.

In partnership with TaxSlayer, we’re going to explore eight different tax breaks that you may qualify for as a side hustler. These have the potential to save you on taxes. And if you’re not sure if you qualify, TaxSlayer can help! Check out TaxSlayer here and get started with your tax return today >>

Top 8 Tax Breaks For Side Hustlers For The 2021 Tax Year

These tax breaks are some of the best ways for side hustlers to save money off their 2021 tax bill. When you complete your taxes this season, be sure to keep these deductions and credits in mind.

The Qualified Business Income Deduction (QBI)

The qualified business income deduction (QBI) is a deduction available until 2025. Under the current tax code, business owners with taxable income less than $164,900 ($329,800 for joint filers) can deduct 20% of their business income from their taxable income. 

The deduction has a phaseout period for individuals earning between $164,900 – 214,900 or joint filers earning between $329,800 – $429,800.

The great thing about the QBI deduction is that business owners don’t have to “do” anything to prove they deserve the deduction. You simply report your income earned from self-employment into the proper tax forms and follow the instructions to calculate your deduction. Side note: If you’re using TaxSlayer Self-Employed, the QBI deduction is calculated for you.

Check out TaxSlayer here and get started >>

Covid-19 Tax Credits For Self-Employed People

The American Rescue Plan included several tax provisions for people directly affected by COVID-19. One of the most valuable provisions includes a type of “medical leave” for self-employed people.

Self-employed people (including side hustlers) can qualify for a tax credit for sick leave. The sick leave credit allows filers to claim a tax credit worth up to 100% of their average daily income (max: $511 per day) for up to 10 days of work missed due to Covid-19 complications. The person must have been unable to work between January 1 and September 30th for the following reasons:

  • Experiencing symptoms of COVID-19 and seeking a medical diagnosis.
  • Seeking or awaiting the results of a diagnostic test for, or a medical diagnosis of, COVID-19 and the individual has been exposed to COVID-19 or is unable to work pending the results of the test or diagnosis, or
  • Obtaining immunization related to COVID-19 or recovering from any injury, disability, illness, or condition related to the immunization.

Self-employed people can also claim a credit worth up to $200 per day or 67% of their average income if they missed work due to family obligations associated with Covid-19.

  • Caring for an individual who is subject to a Federal, State, or local quarantine or isolation order related to COVID-19, or has been advised by a health care provider to self-quarantine due to concerns related to COVID-19;
  • Caring for a child if the child’s school or place of care has been closed, or child care provider is unavailable due to COVID-19 precautions; or
  • Experiencing any other substantially similar condition such as accompanying an individual to obtain immunization related to COVID-19, or to care for an individual who is recovering from any injury, disability, illness, or condition related to the immunization.

Tax software such as TaxSlayer Self-Employed makes it easy to claim these types of deductions, as it will walk you through exactly what it takes to qualify.

Phone And Internet Expenses

Few people can operate their side business without a cell phone and internet. Side hustlers who log their usage can deduct the portion of their usage associated with their side business. To claim this deduction, you need to have a written record of the expenses, and some form of written documentation that shows what percentage of the expenses was for your side hustle.

If you want to be 100% sure that you’re only reporting the business use of your phone and internet for the sake of this deduction, , you may want to buy a second line just for your business.

Equipment Purchases (Section 179 Deduction)

When you buy equipment (including phones, computers, or other assets) you can either depreciate the asset over its useful lifetime, or you can claim the full deduction the year you buy the item. For example, you could depreciate a $600 tablet used to fill orders over six years. Or you could depreciate the full purchase the year you buy it.

Often, treating these assets as expenses is the best way to manage your company’s finances.

Retirement Accounts

Side hustlers can use a SEP-IRA or an individual 401(k) to shelter some of their money from income taxes. Contributions to these accounts go in tax-free, and the gains grow without taxation. However, you will have to pay taxes on the funds when you withdraw the funds in retirement.

Retirement contributions are subject to income limitations, and taxpayers face limits on their total IRA contributions. That means contributing to a SEP-IRA could prevent you from contributing to a Roth IRA or a traditional IRA.

Likewise, total employee contributions to a 401(k) are limited to $19,500 across all 401(k) accounts. A side hustler with a 401(k) at work needs to be careful to avoid over contributing between the two accounts.

Side hustlers have until April 15th to complete their contributions to tax-sheltered retirement accounts.

Business Use Of A Vehicle

When you drive a car for your side hustle, you can claim a mileage or vehicle expenses deduction. Side hustlers can claim $0.56 per mile driven for their business, or they can claim a proportion of their actual vehicle expenses for the year. No matter which method you choose, you’ll need a written record of your mileage.

If you’re side hustling for a driving or delivery service, make sure you’re tracking your mileage. You might even consider using an app to help you keep track.

Then, when you file your taxes, software like TaxSlayer will ask you how much mileage you’ve driven for business. It’s much easier to answer when you’ve kept accurate records all year!

Home Office Deduction

The home office deduction allows you to deduct expenses related to having and maintaining a home office. People who can designate a specific set of space as their “self-employment zone” can deduct a proportion of their total home costs (including utilities) from their taxes. 

To qualify, your home office must be exclusively used for your business, and you must do most of your business from that space. In other words, if you do your day job from the same desk, the space doesn’t qualify.

The home office deduction has two formulas that can be used. The simplified option allows a person to deduct $5 per square foot of space used, up to 300 square feet total. A person with a three-foot by three-foot space dedicated to their business could deduct $45 from their taxes.

The more complex method is the proportional method. If a person lives in 900 square feet, and they dedicate nine square feet to their home office, they can deduct 1% of their total living costs. If their total cost of rent and utilities is $15,000, they can deduct $150 for the year. Once again, your actual expenses must be reported, so this option is best for side hustlers who keep good, organized records.

Continuing Education

Online courses, formal schooling, conferences, training, subscriptions to industry publications, and books may be deductible, provided that the educational materials helped you to develop your business. To qualify for this deduction, the coursework or materials must be relevant to your current field, and it must help you to develop or improve in this field.

If you haven’t done a great job of separating business and personal finances, check through your purchase history to see if you’ve bought relevant courses or books that could be deducted. Not everything will qualify, but you may find a few deductible surprises in your purchase history.

Final Thoughts On Tax Deductions For Side Hustlers

Side hustling adds income, which increases the amount you might have to pay in taxes. However, side hustlers can minimize their taxes through tracking expenses and understanding deductible expenses.

We recommend TaxSlayer for side hustlers this year because TaxSlayer Self-Employed gives you access to all the small business tax forms you need at one low price. Other tax software may end up costing you $100s to simply file a little bit of gig employment income – and that’s not right.

Plus, if you have questions about the deductibility of an expense, TaxSlayer Self-Employed could be a low-cost way to get an expert to weigh in on the matter. They can answer your questions and help you navigate filing your taxes.

TaxSlayer Self-Employed will help you claim all the tax credits and deductions you qualify for–it’s part of their maximum refund guarantee. And your return is guaranteed to be accurate based on the information you provide, so be sure to carefully enter your self-employed expenses–you don’t want to miss out on an opportunity to save! 

Get started with TaxSlayer here >>



Source link

Leave A Reply

Your email address will not be published.