Currently, over one in four Americans have some source of income outside of their regular job. While the freedom and income benefit these supplemental sources provide can be very helpful for individuals and families trying to increase their monthly margins, it can also make tax filing significantly more complicated. In this guide, we explain how taxes for freelancers are different from simply filing a W-2 in April, and what you can do to make sure you get it right.  

What Counts as Taxable Side-Hustle Income? 

Freelance work, gig-work, consulting, or selling your own products and services all count as taxable income. This includes irregular or part-time work that is not reported on other tax forms like a 1099 or W-2. This can even include things like Venmo or Cash App payments you receive in exchange for your labor. 

How you classify this income will depend heavily on if you are a 1099 contractor, or if you have opened your own LLC. If you’re a contractor, you will have to report any 1099 income made that exceeds $2,000. This is an increase from the original $600 threshold (increased as part of the One Big Beautiful Bill) and applies to freelance income earned after January 1^st, 2026.  

If your side income qualifies as a business, your filing will depend on your entity structure, profits, and classification. This will vary by situation, so it’s important that you seek guidance from a professional on how to make sure you’re filing correctly and staying compliant.  

Freelancing Tax Deductions 

Freelancers and contractors can typically claim tax deductions related to their work. This can include:  

• Home office expenses: This applies to a space you use regularly and only for work. It should be your main place of business or a spot where you often meet clients or handle business tasks like paperwork and admin work. 

• Business supplies and equipment: You can usually deduct work-related items like computers, software, office supplies, tools, phones, and furniture used for your business. 

• Mileage and travel costs: Business trips and work-related driving may qualify for deductions, including mileage, gas, parking, hotels, flights, and some meal costs. Be sure to keep records of your trip expenses. 

• Training and professional development: Courses, certifications, workshops, and other training related to your work may be deductible if they help you improve your current skills. 

While these write-offs can help offset costs and lower taxes for freelancers, it’s important to keep clear, detailed records in order to claim them. 

Recordkeeping Tips To Simplify Taxes for Freelancers 

At the core of calculating accurate taxes for freelancers is good recordkeeping. Here are some ways to stay on top of your recordkeeping and avoid common mistakes. 

Small charges can add up quickly. If you’re planning to deduct equipment, gas, or other small frequent charges, you can quickly lose track without consistent recordkeeping. For example, if you plan to write off a phone charging cable or beads used in your jewelry business, you will need to keep track of those charges, ideally recording them on the day of purchase. 

Not everything is deductible. It’s important to keep in mind that not every expense is deductible, and in the event of an IRS audit you don’t want to put yourself in a position to defend yourself without a clear explanation. Personal mileage, meals, and items are not tax deductible and could put you at risk of an audit if you attempt to write them off. 

Don’t throw away receipts. Keeping receipts is a good safeguard against relying on memory alone. Every receipt you plan to use as a write-off should be put in a designated folder and labeled with what the expense was and why it applies as a write-off. You should keep these receipts for as long as you would keep tax records from the same year (like 1099s or W-2s).  

Your entity selection matters. Taxes for freelancers or people with side-hustle income will depend greatly on how the worker is classified. For example, an employee working as a contractor getting a 1099 directly without an LLC behind them will have different tax expectations than someone running a business on Etsy as an S-Corp. This can also impact what you are able to write off. That’s why it’s so important to get personalized advice from tax professionals who know your situation and not just rely on generic advice. 

Combining accounts is risky. It’s always best to keep business and personal accounts separate. This prevents “cross contamination” that can result in inaccurate taxes for freelancers or people with side-hustle income. 

Stay on top of your taxes. It’s never a good idea to treat your taxes as an afterthought. This can result in you over-spending and leaving yourself with nothing set aside to pay in April. That’s why you need to keep track of how much you’re making, as well as an estimate of what you will owe in taxes, so you don’t get into a tricky situation when tax season rolls around. 

Feeling Lost? PaulHood Can Help 

If you’re feeling overwhelmed, don’t panic. The experienced team at PaulHood can help you get on the right track, so you know what you owe, and how to make the most out of your freelance or side hustle income. With the right team behind you, you can use that extra cash to start meeting your goals and get ahead. Click here to schedule a call today and get expert advice tailored to your unique situation.