The Tax Mistake Most Side Hustlers Don’t Even Know They’re Making

Side hustles are booming. Whether it’s Uber after work, baking custom cakes, reselling on Facebook Marketplace, or freelancing in your pajamas, more Americans than ever are building income streams outside their 9-to-5. But there’s one common mistake that quietly costs side hustlers thousands each year—and most don’t even know they’re making it.

Here’s the kicker: they don’t treat their hustle like a real business.

It Starts with a 1099… and Ends with an Overpayment

Let’s say you bring in $25,000 from photography gigs on the weekend. Come tax time, you get a couple 1099s, plug everything into TurboTax, and see that you owe more than expected. Why? Because when you’re self-employed, you’re not just paying regular income tax, you’re also on the hook for self-employment tax. That’s an extra 15.3% right off the top for Social Security and Medicare.

Now layer in federal and state income tax and you could be losing 30% or more of your hard-earned side income to taxes—unless you know how to fight back.

You’re a Business… So Start Acting Like One

The IRS already sees you as a business. That means you should start treating your hustle like one. From there, you can unlock powerful tax strategies, starting with deductions.

Think: mileage, supplies, software subscriptions, home office expenses, even part of your cell phone bill. These aren’t “loopholes”, they’re legitimate business deductions. But most side hustlers either don’t know what they can write off, or they’re too disorganized to track it properly. And that’s money left on the table.

Real-World Example: From Weekend Work to S Corp Savings

Let’s take Jordan, a freelance video editor based in Colorado. For years, he worked full-time at a tech company and edited wedding videos on the side. In 2024, his side income hit $60,000. He reported it on Schedule C like always, and got hit with a $16,000 tax bill.

In 2025, he got smarter. He formed an LLC, then filed Form 2553 to elect S-corp status. He started paying himself a “reasonable salary” of $40,000 and took the rest as distributions. He also began tracking his deductions: upgraded gear, travel to shoots, editing software, even a portion of his home office.

The result? His tax liability dropped by nearly $5,800. That’s not some theoretical savings—it was real money back in his pocket. And with Colorado’s $10 business renewal fee and zero franchise tax on small entities, the shift was nearly cost-free to maintain.

Why the Right Structure Matters

That LLC + S corp combo isn’t just some accountant gimmick. It’s one of the few legal tax strategies available to everyday folks that can truly move the needle. But timing matters. This setup starts making sense when your net income from the side hustle hits around $40,000 to $50,000 a year. Below that, the tax savings might not outweigh the added complexity. But once you’re in that range it's time to have the conversation.

In Louisiana, the annual LLC renewal is just $35, and there’s no separate franchise tax for small one-owner LLCs. That means whether you’re operating in Denver or New Orleans, the path to tax efficiency is wide open.

Don’t Forget Estimated Taxes

Here’s another area where folks get blindsided: quarterly taxes. The IRS wants its cut throughout the year—not just in April. If you’re making side hustle income and not sending in quarterly estimated payments, you could be hit with penalties and interest when you file.

A good rule of thumb? Set aside 25–30% of your profits for taxes, and make sure you’re paying in every April, June, September, and January. It’s not glamorous, but it’ll save you from a painful surprise later.

Always consult with a tax accountant. Majority of tax accountants offer tax planning to get you as close to breaking even as possible, because lets be honest, there is nothing worse the owing a fat sum at the end of every year.

The Bottom Line: Shift Your Mindset

The biggest mistake isn’t just a technical one, it’s mental. Too many people see their side hustle as “just extra money.” But the IRS doesn’t care how you see it. If it’s bringing in income, it’s a business. And once you accept that, you unlock strategies that can protect your earnings and build real financial leverage.

So if your weekends are busy with clients, orders, or rideshare pickups, it might be time to take the next step. Get organized. Track your expenses. Explore entity options. And most importantly, talk to someone who can help you make smart, proactive decisions.

Your side hustle deserves the same attention and strategy as any full-time business. And your wallet will thank you for it.