Side hustles have become a popular way for people to make extra money outside of their regular jobs. Whether you’re freelancing, driving for a rideshare company, or selling handmade items online, side hustles can be a great way to boost your income. However, there are important tax implications of side hustles that you should know. Understanding them can help you avoid unexpected bills or penalties. In this article, we’ll break down the tax implications of side hustles in 2025 and give you tips for handling your taxes properly.
What is a Side Hustle?
A side hustle is any job or business activity you do in addition to your regular full-time job. Side hustles can take many forms. You might drive for a rideshare service like Uber or Lyft, offer freelance graphic design services, teach online courses, or sell products online. Regardless of what your side hustle is, you need to understand how it impacts your taxes.
Why Are Side Hustles a Tax Concern?
The tax implications of side hustles arise because the government taxes the money you make from these activities. You need to report this income and pay taxes on it. Many people forget that side hustle income is taxed just like income from a regular job. In 2025, it’s more important than ever to understand how to report your side hustle income correctly.
There are some key tax considerations you need to keep in mind when you have a side hustle.
Key Tax Implications of Side Hustles in 2025
1. Self-Employment Tax
When you earn money from a side hustle, you are usually considered self-employed by the IRS. This means you may have to pay self-employment tax. Self-employment tax covers Social Security and Medicare taxes. Normally, your employer would withhold these taxes from your paycheck. But as a self-employed person, you are responsible for both the employer’s and the employee’s share. In 2025, this rate is 15.3% on the first $142,800 of income.
For example, if you earn $10,000 from your side hustle, you will owe $1,530 in self-employment taxes. This is in addition to regular income taxes, which we will discuss below.
2. Income Tax
In addition to self-employment taxes, you will also need to pay income taxes on the money you make from your side hustle. The amount you pay depends on your total income and the tax brackets in 2025. The more money you earn from your side hustle, the higher your tax rate will be.
You will report your side hustle income along with your regular job income when filing your taxes. For example, if you made $10,000 from your side hustle and $40,000 from your main job, you will report a total of $50,000 in income to the IRS.
3. Deductions for Side Hustle Expenses
The good news is that you can deduct some expenses related to your side hustle from your taxable income. The IRS allows self-employed individuals to deduct business-related expenses, which can reduce your overall tax bill. Common deductible expenses include:
- Supplies and equipment – If you need materials to perform your side hustle, such as a computer, printer, or tools, you may be able to deduct the cost.
- Home office – If you work from home for your side hustle, you may be able to claim a portion of your rent or mortgage as a deduction. You can also deduct utilities like electricity and internet.
- Transportation – If you use your car for your side hustle, like driving for Uber or delivering packages, you can deduct the mileage you drive for business purposes.
For example, let’s say you spent $1,000 on supplies and equipment for your side hustle and $500 on transportation for business purposes. If you earned $10,000 from your side hustle, you could potentially deduct $1,500, lowering your taxable income to $8,500.
4. Estimated Tax Payments
If you have a side hustle and are self-employed, the IRS may require you to make estimated tax payments throughout the year. Since you don’t have an employer withholding taxes from your paycheck, you are responsible for paying your taxes directly to the IRS. You can make these payments quarterly.
In 2025, the IRS recommends making estimated tax payments if you expect to owe at least $1,000 in taxes after subtracting withholding and refundable credits. If you fail to make these payments, you could face penalties at the end of the year.
How to Keep Track of Your Side Hustle Taxes
Now that we’ve covered the basic tax implications of side hustles, let’s talk about how to stay organized. Keeping track of your income and expenses is crucial. Staying organized will help ensure that you don’t miss any important deductions and prevent any issues with the IRS.
1. Use Accounting Software or Apps
Several tools can help you track your side hustle income and expenses. Apps like QuickBooks, FreshBooks, or even simpler tools like Expensify can help keep everything in order. These tools let you track each dollar you earn and each expense you incur.
2. Keep All Receipts and Records
Be sure to save all receipts and records related to your side hustle. This includes invoices, purchases for supplies, and other documents that show your business expenses. The IRS may ask for these documents if they audit you, so it’s important to have everything organized.
3. Consult a Tax Professional
If you’re unsure about the tax implications of side hustles, it’s a good idea to talk to a tax professional. A tax expert can help you understand your tax obligations and ensure that you’re maximizing deductions. They can also assist you with calculating estimated tax payments, so you don’t get hit with surprises at the end of the year.
Conclusion
The tax implications of side hustles in 2025 are crucial to understand if you want to avoid penalties and maximize savings. From self-employment taxes to deductions for business expenses, managing the taxes on your side hustle might seem complicated. However, by staying organized, tracking your income and expenses, and making estimated tax payments when required, you can ensure that your side hustle is both profitable and tax-efficient.
Remember, side hustles are a great way to earn extra income. But understanding their tax implications will help you keep your finances in check. Whether you’re making a little extra cash or building a small business, the right tax strategy will help you keep more of what you earn.
Key Takeaways:
- Side hustle income is subject to self-employment taxes and income taxes.
- You may be able to deduct business expenses like supplies, transportation, and home office costs.
- Estimated tax payments might be required for self-employed individuals.
- Use accounting tools and keep thorough records to stay on top of your taxes.
By understanding the tax implications of side hustles in 2025, you can ensure you’re prepared and avoid any surprises when tax season comes around.
