How Is Your Side Hustle Taxed

Most people start out on their entrepreneurial journey with a side hustle, part time business or something in between. A lot of people will still be working in their role as an employee while building their business. There are usually no issues with this, once you put the right things in order. (And check your employment contract for clauses around outside employment/conflicts of interest etc!). There are also people who have no intention of leaving their employment and use their side hustle as an additional source of income.

In today’s economy, some of the most common being:

  • Beautician

  • Fitness Instructor

  • Tutor

  • Etsy Shop Owner

  • Hobbyist

  • Coaching

  • Photographer

The question I get asked most is, will my side hustle/part time business/new business affect my taxes? Short answer- Yes! No matter what job or source of income you have outside of your primary income (employment), you must report it to Revenue. If you have unreported or under-reported income, you could be viewed by the Revenue Commissioners as tax-evading and would be liable for both the outstanding tax and interest/penalties.

How much tax you will owe on that income depends entirely on how much extra money you bring in. How you declare this income will depend on two scenarios:

1. Earn less than €5,000 net income from non-PAYE sources

In this case, you will have less than €5,000 in PROFIT (not sales) from your side hustle in the tax year. You can then do an abbreviated tax return called a Statement of Liability through your MyAccount on Revenue.ie without needing to register as a sole trader.

This allows you to declare the additional income earned from your business by inputting a single figure into a pre-populated form that contains your employment details. You should still retain all books of account and receipts relating to the business. You will pay income tax on the additional income but the liability will be calculated automatically by Revenue.

Remember, if you fall into this category to use the profit figure rather than your sales figure. This means deducting all allowable business expenses from your business income to determine the taxable income.

2. Earn more than €5,000 from non-PAYE sources

If you earn more than €5,000 from non-PAYE sources, then you are obliged to register as a sole trader on ROS and complete a full tax return (Form 11) each year. In this case, you will have one tax return per year which includes all of your income, regardless of the source. So, this can include employment income, business income, side hustle income, rental income, investment income, foreign income etc.

You will pay income tax at your marginal rate (depending on your personal circumstances) on your combined income and any income tax already paid will be offset in the return. You may need an accountant as a full tax return will be required with extracts from your accounts.

What expenses can be written off from my side hustle?

If you’re working more than one job, there is a wide range of allowable deductions that can be used to offset your income tax return.

While your deductions will vary depending on your work, here are some of the common nixer expenses you might be able to claim for:

Accountancy Fees

The fees you pay to a professional accountant or financial advisor are usually deductible.

Materials

If your side hustle requires you to purchase materials, equipment, protective clothing, etc., these expenses can be written off as deductions.

Phone Bills

Most people find that paying for and maintaining a separate phone is expensive and unsustainable, meaning their personal mobile doubles as a work phone. The time you spend on your phone for your side hustles is tax deductible; however, speak to your accountant about what percentage you can claim.

Insurance Costs

Some insurance costs, such as professional indemnity, public liability, and product liability are considered allowable deductions.

Work Space

If your side hustle or business requires you to rent out a space – such as a room for your fitness classes or a practice space for music lessons –these expenses may also be deductible. So would a co-working space or meeting room hire.

Subscriptions

Think of the technology you are using for your side/hustle or business. Monthly subscriptions for apps and computer systems are allowable if they are used to run your business.

Prior Year Losses

Sometimes it takes a bit of time to start making money from a side job. If you incurred losses in previous years, these can be used to offset current year profits. It’s important to note, however, these losses need to be ring-fenced and declared to the Revenue Commissioners so it’s absolutely essential to speak to your accountant before using these as a tax deduction for your income tax return.

At this time of the year, many people are getting their income tax returns drafted and completed. This blog post is aimed at helping those who may be new to business and are still working as an employee or who may have additional sources of income outside of their employment.

Disclaimer: This post does not constitute financial advice and is for information and educational purposes only. This blog does not constitute an accountant/client relationship.

Edel Hayes