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It may be easy to manage a one-sided endeavor as an additional source of income, but adding a second or third can make everything more complicated. Trying to handle everything from everyday hassles to tax planning can quickly become overwhelming.
“As revenue streams grow, complexity increases exponentially,” said CFP Principal Veronica Karas. Capture. “The key difference is not just the reporting requirements – it is the level of planning required to efficiently manage tax obligations.”
Here are some tips that people with more than one party can follow to stay on the right side of the IRS.
1. Keep personal and business finances separate
Mixing personal expenses with business income can create confusion even if there is only one income source. Add multiple side gigs, and recordkeeping can become especially messy.
Dedicated accounts for each income stream can be helpful, but keeping business income separate from personal spending is the most important thing, even if it’s one account for multiple side gigs. This keeps everything neat and easy to document if the IRS has any questions.
2. Report all income, not just the income that appears on the form
Missing a 1099 does not mean the income is invisible. It still matters, and the IRS has various ways to detect underreported income, including data from the paying entity.
This applies whether the income comes via apps, bank transfers, cash or crypto.
3. Track and Document Expenses
Tracking expenses is often placed at the bottom of the to-do list, especially when dealing with multiple side hustles on the go, but this can be a costly mistake.
Having systematic tracking and documentation reduces the chances of side hustlers leaving money on the table. “Many people don’t claim legitimate deductions simply because they didn’t keep records throughout the year,” Karas said.
4. Set aside and pay taxes throughout the year
Unlike a traditional W-2 job, side hustle income does not come with automatic withholdings, which shifts the responsibility solely onto the earner.
Karas recommends setting aside 25% to 35% of income for taxes as a good starting point. From there, estimated quarterly payments can help avoid penalties. Failing to keep up with tax payments is a common and costly mistake for side hustlers with multiple income streams.
5. Take advantage of professional assistance
As additional income grows, taking a DIY approach to taxes may start to cost more than it saves.
“If the side hustle becomes meaningful income, it’s worth talking to a tax professional about projected payouts and retirement planning opportunities that can help minimize taxes,” Karas said.
Expert advice can turn tax strategy into a streamlined part of business growth, making it easier to manage multiple sources of income.