Q: I recently began a side hustle as a fitness instructor at a local gym here in Oregon. I’m thrilled to be paid to work out! I haven’t had any taxes taken out of my checks–is this normal, or should I be concerned?
A: The terms “side hustle” and “gig economy” are popular these days, in part because people are creatively finding ways to impact their finances positively. Whether you’ve taken on your role as a fitness instructor to pay down debt, add money to your savings, or a little bit of both, it’s important that you carefully consider and account for your additional income.
As I recently told Fast Company,
Too many people don’t understand the sacrifices, responsibilities, and risks they’re making when they take on a side hustle. It could be a financial disaster very, very fast. Just because it’s a side gig doesn’t mean that you don’t still have to do a lot of the same structure as a real business.
Extra income very literally comes at a cost. That’s not to say that you’re doing anything wrong, but there are tax considerations that you should know about sooner rather than later.
People tend to let their guards down when it comes to side hustles, and they really shouldn’t. No, taxes won’t be taken out of your checks like a regular salary unless you’re an employee. Which means added responsibility for you.
By that I mean you’re going to have to pay taxes on that income sooner rather than later. I love this advice on how to frame your thinking about your side gig from Nayo Carter-Gray:
People who have been doing side gigs usually owe [taxes] and are surprised and shocked that they owe. I tell my gig workers to consider themselves mini-franchise owners.
An important step you can take in this regard is to keep track of any expenses you incur for your side hustle, just as you would for business.
Understanding your tax liability early on will be key in helping you understand how you want to proceed with your gig. Consult with a tax professional who can help you evaluate what you’ll owe for the year.
Side hustles can be an exciting way to spice up your life and bring in more money. But it’s entirely up to you to ensure that your tax liability is paid to the IRS. Don’t wait to find out any nasty surprises. Set up some time to consult with a professional as soon as possible
Best of luck to you!