Author Topic: Side Hustle Taxes  (Read 367 times)

tduff311

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Side Hustle Taxes
« on: December 05, 2017, 04:12:09 PM »
So my wife started a new side hustle this year as a photographer. We weren't sure if it would pan out but, as it turns out, she is doing fairly well so far and there's promise of more.

So, my question: should we establish this formally as a business?

We only played this on the side with modest seriousness, but now it's evident it is more.

The first thing we are looking at is upgrading her PayPal personal account to a business account and using the API to permit more business options, such as connecting her photo online business account to more delivery options for her products.

If you agree that becoming an 'official' business is the way to go, what are the steps/items to check off in doing this?

I am a Federal employee and do all of our family taxes, but I have little experience in the business side, and her knowledge and experience is less on the topic.

Thanks!

ps We are concerned that the taxable increase in our family income will cause the loss of some pretty serious medical assistance my 6 year daughter receives for her genetic medical disability.
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Finances_With_Purpose

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Re: Side Hustle Taxes
« Reply #1 on: December 05, 2017, 09:19:28 PM »
First off, congratulations to you both! 

The nice thing is, you're asking before you're even far along.

Here's what I would do first: get a CPA.  If you don't have one already, get one.  If you do have one, call that person.  If he/she can't advise you, then find a better CPA.  And ask that CPA. 

A tax pro will tell you off the top of his/her head.  That's my #1 and most important input. 

--

Everything else I say now is stuff the CPA might tell you.  First: Track your expenses.  Mileage.  Etc.  Find a system to keep up with receipts (scanning is probably easiest) to deliver to your tax professional.  You may deduct business expenses against her business "income" and it won't be taxed.  So if she has many expenses, then I would consider calling it a business. 

If you simply do all that it'll help your taxes.  You can decide later whether to make it a hobby (if the wife eventually changes her mind, etc.) if you need to, but take the deductions now. 

This (tax) year, you might just take the easy ones and gear up to collect the info you need by Jan. 1 for next year. 

You also may want to decide to make it a full legal entity and structure it for taxes, but my understanding (as of now) is that it may not be worth it until you get near 100k/year, or towards that range (say above 50 and looking to improve) due to the time/expense involved.  So you may have a while to figure that out.  Also, the GOP tax bill may significantly impact this calculus (so you may want to run it as a corporate entity sooner), but nobody knows for sure yet what it will do or if it'll even pass. 

But finally, the one huge caveat to all of this: check w/ your trusted tax pro.  That's the key.

pmac

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Re: Side Hustle Taxes
« Reply #2 on: December 08, 2017, 07:16:57 AM »
I would establish an LLC for her, that limits her liability with the photography business.

Also, establish an individual 401k. She can contribute a lot of money into that from her side business. Helps to save for retirement, plus keep your AGI low.