Side hustle income faces multiple taxes: self-employment tax (15.3%) plus federal income tax (10-37% based on bracket).

Example: $30,000 side income with $10,000 expenses = $20,000 net profit.

SE tax: $20,000 × 0.9235 × 0.153 = $2,826.

Federal tax (22% bracket): ~$3,000.

Total tax: ~$5,826 (29% effective rate).

However, QBI deduction can reduce taxable income by up to 20% of net profit ($4,000 in this example), saving ~$880 in federal tax.

Always set aside 25-30% of gross income for taxes.

Common deductible expenses include: Vehicle (standard mileage $0.655/mile OR actual expenses), Home office ($5/sq ft simplified OR actual expenses), Supplies and materials, Software subscriptions, Marketing and advertising, Professional services (accounting, legal), Insurance, Equipment (computers, tools), Internet and phone (business portion), Education and training, Travel and meals (50% meals).

Track everything with apps like MileIQ or Expensify.

Example: Uber driver traveling 20,000 miles = $13,100 deduction.

Keep receipts and mileage logs for IRS documentation.

Yes, if you expect to owe $1,000+ in taxes after withholding.

Quarterly payments are due: April 15 (Q1), June 16 (Q2), September 15 (Q3), January 15 (Q4).

Calculate using Form 1040-ES or safe harbor rule: pay 100% of prior year tax (110% if AGI >$150k) divided by 4.

Example: Last year's tax was $8,000, pay $2,000 per quarter to avoid penalties.

Adjust if income varies significantly.

Missing payments incurs ~6% annual interest plus potential penalties.

Qualified Business Income (QBI) deduction allows up to 20% deduction of net profit from pass-through businesses, including sole proprietorships (most side hustles).

Calculation: Lesser of 20% of QBI or 20% of taxable income minus capital gains.

Example: $25,000 net profit = $5,000 potential deduction.

Phase-out begins at $182,850 (single)/$365,700 (married) for specified service businesses (consulting, health, law).

No deduction if taxable income exceeds $232,850/$465,700.

W-2 wages don't qualify for QBI.

Most side hustles don't need an LLC for tax purposes—tax treatment is identical to sole proprietorship (both file Schedule C).

LLC benefits: personal asset protection, professional credibility, easier business credit.

LLC costs: state filing fees ($50-500), annual fees, separate bookkeeping, potential additional taxes (some states).

Consider LLC if: revenue exceeds $20,000/year, you have liability risks (driving, professional services), or multiple partners.

S-Corp election may save SE tax if net profit exceeds $60,000 (pay yourself reasonable W-2 salary, remainder as distribution).

Coordinate tax planning across both income sources.

Your W-2 withholding can cover some side hustle taxes, but usually insufficient.

Strategy: Increase W-2 withholding (submit new W-4 with extra withholding) to cover side hustle taxes, avoiding quarterly payments.

Calculate total tax on combined income, subtract W-2 withholding, pay remainder quarterly.

Example: $60k W-2 + $20k side hustle = $80k total.

If W-2 withholding is $8,000 but total tax is $13,000, pay $1,250 quarterly ($5,000/4).

Track everything in one system for accurate year-end filing.