The Hidden Costs of Side Hustles Nobody Talks About
A side hustle can seem like an easy way to bring in extra cash. But many people discover too late that making money on the side can also bring additional costs they didn’t account for.
Experts share some of the hidden costs of side hustles to be aware of before you dive into a fresh gig.
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Side Hustle Taxes Can Be a Shock
One of the biggest hidden costs of side hustles is taxes, particularly for people earning 1099 income for the first time.
Annette Nellen, a certified public accountant (CPA) and tax professor at San Jose State University, explained that self-employment taxes are owed once earnings exceed $400.
“Because there is no withholding as there is for employees, self-employed persons — such as gig workers — need to compute and pay quarterly estimated taxes,” she said.
Those estimated payments are generally due four times per year and may also apply at the state and local level depending on where someone lives and works.
While self-employed workers may qualify for deductions such as business expenses, they need to be prepared and keep receipts to get these deductions.
Small-Business Expenses Add Up Quickly
Many side hustlers focus on gross income without realizing how many recurring expenses chip away at actual profit.
Amy Coats, founder of Accounting Atelier, said people frequently overlook “mileage if they’re driving for the side hustle,” along with “home office expenses,” “a portion of their phone and internet costs” and software subscriptions.
“The pattern I see most often is people remembering the big obvious expenses and missing the smaller recurring ones, which adds up significantly over a year," she added.
Nellen stressed the importance of careful record keeping, since freelancers and gig workers are responsible for tracking both revenue and expenses themselves.
The Time Cost Can Be Bigger Than the Money Cost
Another hidden side hustle expense many people fail to calculate is time spent on unpaid work.
“Side hustlers have limited time outside their primary job, and a lot of that time gets spent on the fun parts of the business — branding, website tweaks, social media — instead of on what actually moves the needle,” Coats said.
If a task isn’t directly tied to bringing in or serving paying clients, she recommended putting it off.
Nellen similarly said people often fail to understand “what that means in terms of making a profit and tax compliance.” Side hustlers should spend time learning how to improve profitability within their industry.
Inconsistent Income Makes Budgeting Harder
Unlike a paycheck that arrives predictably every two weeks, side hustle income can fluctuate dramatically month to month.
“It can make it more difficult to estimate your income for estimated tax purposes,” Nellen said.
Coats recommended building a budget around the lowest realistic earning month rather than assuming every month will be strong.
“The practical move is to set aside a percentage of every payment as it comes in — I recommend at least 25% as a starting point — so you’re not scrambling to come up with the tax money during a slow stretch,” Coats said.
At Some Point, the Math Has To Work
Not every side hustle becomes financially worthwhile long term, particularly when hidden costs begin outweighing the income earned.
“A side hustle is almost always going to make less than a primary job in the beginning,” Coats said. “You have to decide up-front how much time, energy and personal money you’re willing to put into it before you’d reconsider.”
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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