Taxes can feel really daunting, as we’re all aware of just how much trouble they can land us in if we get them wrong. And as a freelancer or small business owner, chances are that you started your business out of a passion for something you enjoy, not because you’re a mastermind with taxes. But don’t let this put you off going for your dream, while there are some things to understand, there is plenty of help out there too. Here are some of the basics that you need to know.
Registering Your Side Hustle and Getting The Right Paperwork
Depending on the nature and scale of your side hustle, you might need to register your venture with the appropriate authorities. This could involve obtaining a business license or registering as a sole trader. Meeting specific industry standards or certifications (such as hygiene certificates for food related businesses) makes sure you stay within the law. Most likely, your business will need liability insurance in case anything goes wrong or anyone puts in a legal claim against you in any way relating to your business. Research the requirements in your area and to do with your specific venture to make sure that you're compliant from the start. The world of tax identification numbers can be tricky for new businesses to understand too. A common question is ‘what is the difference between an EIN and a TIN?’ Basically, an EIN, or Employer Identification Number, is for businesses, while a TIN, or Taxpayer Identification Number, is a more general term covering various identifiers. Knowing these differences means you choose the right one for your business, setting you up for smooth tax compliance
Separating Personal and Business Finances
Always open a separate bank account for your side hustle to track income and expenses accurately. Ideally, open a business bank account which can make things easier and more efficient to keep track of. Detailed and accurate record keeping is so important when it comes to managing the financial side of your side hustle, so be sure to keep note of expenses, receipts and invoices too. You can make use of accounting software or apps to simplify this, which gives you a full financial trail come tax season and make your tax return easier to complete.
Getting Started
Getting started as a self employed individual here in the US is pretty simple, and you can do it even if you have a full time job too with an employer handling your taxes. If you're making money through a hobby or a side hustle, you need to report it through self-assessment, even if the earnings don't reach a taxable threshold. Visit the IRS website, and the process involves filling out the necessary forms for your individual income tax return. The specific forms you need to complete depend on your financial situation, such as whether you have income from employment, self employment, investments etc. This can include costs associated with running your side hustle (like office supplies, equipment, or travel expenses) which can all bring down what you pay. Always keep the receipts and documentation to support these deductions when filing your tax return. If you're unsure then hiring an accountant can be worthwhile as they have plenty of experience in dealing with this.
