3 Tips for Managing Your Side-Hustle Income - Motley Fool

There are plenty of good reasons to get yourself a side hustle -- income security, extra savings, or the option to spend more freely on leisure and entertainment. Having a side hustle could also help you grow important skills that work wonders for your resume and eventually pave the way to a better primary job.

But if you're going to earn extra cash from a side gig, it's important that you manage it wisely. Here's how to do that.

1. Map out your goals

Chances are, there's a specific thing that's motivating you to spend your free time on a second gig. Maybe you have a pile of credit card debt you want to chip away at. Maybe you don't like the way your savings account looks, and you want to see that number climb. It's a good idea to establish goals with regard to your side-hustle income, as that alone could help you stay on track and meet them. Not only should you determine why you're taking on an extra gig, but you should also set an earnings goal to meet, whether it's on a weekly, monthly, or yearly basis.

2. Create a separate bank account

When you combine your side-hustle earnings with your regular paychecks, the numbers can get muddled. And that could not only make it harder to meet your goals, but also create a tax nightmare (which we'll talk more about in a bit). A good bet is to open a separate bank account for your side-gig income so you can easily track those earnings. And depending on the second job you take on, you may have the option to have your earnings deposited directly into that new account for you.

3. Don't forget taxes

Many people who take on side hustles are paid as gig workers or independent contractors, not employees. What that means is that you'll receive compensation without having taxes withheld (as opposed to your regular paycheck, which has taxes taken out before it hits your bank account). But just because you're not having tax withheld on your side income doesn't mean the IRS isn't entitled to it. Rather, it'll be on you to track your earnings, report that income to the IRS, and pay taxes on it accordingly. It's for this reason that having a separate bank account is a good idea -- so you can easily keep tabs on the money you earn outside your main job.

Now if your side-gig earnings are substantial, you'll need to make estimated quarterly tax payments to the IRS based on that income, and there are online calculators you can use to figure out how much to pay. The reason this is important is that the IRS will penalize you when you file your tax return if you have too much of a tax underpayment. On the other hand, if your side gig only brings in around $20 or $30 a week, you may not need to pay quarterly taxes. Rather, in that scenario, you may be okay to just report your extra earnings on your tax return and make up any underpayment then.

Of course, your best bet is really to talk to a tax professional, who can help you figure out whether your earnings are substantial enough to warrant quarterly payments. Remember, too, that you can't go wrong making quarterly payments, and the worst that'll happen is you'll pay the IRS too much during the year and get your overpayment back in refund form. You may want to err on the side of being cautious to avoid being penalized.

Having a side hustle could improve your finances tremendously. Follow these tips to make the most of that income and avoid tax-related troubles that'll only cause you stress.

Let's block ads! (Why?)

Article From & Read More ( 3 Tips for Managing Your Side-Hustle Income - Motley Fool )
https://ift.tt/3susp3p