3 Surprising Expenses You Need To Budget for When You Have a Side Gig
Written by
Gabrielle Olya
Edited by
Gary Dudak
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A side gig can be a great way to supplement your full-time income. And while it’s always smart to increase the funds you have flowing in, it is important to be mindful of any expenses that can come along with having a side hustle.
If you’re planning on taking on a side gig, these are the expenses you need to be prepared for.
Taxes
“Regardless of how ‘official’ your gig is, you will have to report all income you earn to the IRS,” said Tom Holtam, SVP and senior regional delivery manager at UMB Bank.
There are two ways your taxes can be impacted by your side hustle, he explained.
“One is the self-employment tax,” Holtam said. “This tax specifically covers Medicare and Social Security. You are considered to have a self-employed job if you earn over $400 net profit (after business expenses are deducted) in a year. Your newly generated income could also impact your total yearly earnings enough to affect your taxes.”
There are different strategies to utilize to be prepared, such as setting aside a set amount of income throughout the year.
“This is similar to how your regular job holds some money for taxes before depositing the rest into your account,” Holtam said. “You may need to pay taxes for your work quarterly versus annually if you are self-employed.”
To ensure you are fully prepared for any taxes you may owe, it’s best to work with a professional.
“Be sure to check with your financial or tax professionals to ensure you aren’t taking on anything that could add to your tax burden,” Holtam said.
Material Costs
Depending on your side gig, you may need to be prepared for the recurring cost for materials needed.
“For example, if your gig is selling custom T-shirts, do you have the materials on hand to support selling your product or will you need to invest in supplies to get started?” Holtam said. “If your side hustle requires materials, note that this will be a recurring expense in your budget, not just a one-off to get started. You may need to factor this into the amount you sell your product for so that you are able to make a profit and keep your business afloat.”
Time
You also need to factor in the value of your time, and determine whether the time you will have to dedicate to a side gig is worth it.
“Even if you’re evaluating a part-time gig, ask yourself if you truly have the time to commit to a second job,” Holtam said.
It’s also important to remember that it may take time for your side gig to actually be profitable.
“You may have a hobby or idea that would make a great side hustle,” Holtam said, “but it’s not always as simple as making money from the start.”
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