So that second job and side hustle you love has had a few sales during the year. You’ve made some money. But what does that mean at tax time? How do you handle tax deductions for a second job, and what’s the story with side hustle tax in Australia? Let’s explore.
How to maximise tax return on your second job?
Everyone’s tax situation is different. Any tips or ideas raised here should be discussed with your accountant or registered tax agent to ensure it is right for you. To start considering how to approach the EOFY as a “side hustler”, it will be a good idea to understand what it means to run a side hustle.
Side hustle, second job or just a hobby?
This is a tricky question. There is no hard and fast rule. But, if you make or do things to make a profit, you are likely running a business, and it is no longer a hobby. If you are using an ABN and advertise what you do, then it is likely that your revenues will be considered as income from your business. Even the Australian Tax Office (ATO) understands it can be somewhat subjective and has created a short quiz to help people determine whether what they are doing is a hobby or whether it is, in fact, a second job or side hustle. And because of the growth in the online sector, the ATO has created a set of criteria that help people make the distinction when working in the online space. Why is it important to distinguish between a hobby and a second job or side hustle? The ATO is clear if your side hustle is a business, you’ll need to pay tax on your second job. That also means you will need to claim tax deductions on your second job at the end of the financial year. 
Side hustle tax in Australia
Suppose your side hustle or second job involves just you; for tax purposes, you will probably be classified as a sole trader. As a sole trader with an ABN, you’ll have to report your business income once a year as part of your individual tax return. If your second job involves other parties, you may need to apply another business structure, such as a partnership, which will involve lodging an additional tax return separate from your individual return. Assuming your side activity is considered a business in the eyes of the ATO, then your net income would be taxable. The amount of tax payable is dependent on the amount of net income you make from your side hustle activity (gross income less expenses), as well as what other taxable income you may have – for example, salary and wages, interest income and any other investment income. Should you be preparing to lodge your tax returns soon, checkout our EOFY Financial Health and Tax Checklist to ensure you did not miss anything important.
Tax planning tips for your side hustle
Central to minimising your tax burden is to optimise the tax deductions on your second job. To ensure you do not get hit with any unexpected surprises at tax time, ensure that you do not spend all your second job sales revenue. Always hold something back for the tax due on your business income. Most tips to maximise tax deductions for side hustles in Australia depend upon your attention and focus throughout the year rather than simply at tax time. You must be able to evidence expenditure throughout the year. Only effective record keeping will support that evidence. Here are some rules to assist in the minimisation of your full-time job and side business taxes:
- Always keep accurate and detailed financial records
- Separate your second job and personal expenses
- Keep sufficient records and diaries to substantiate motor vehicle expenses
- Set money aside to pay your taxes
- Regularly monitor your tax position, so you know what to expect at year-end.
- Familiarise yourself with the tax rules and concessions available
- Always use a qualified professional (accountant or tax agent)
Side hustle tax calculator – what deductions are eligible?
Every legitimate expense can be used to decrease your taxable side business income, so it is vital to ensure you capture them all. For those with a side hustle, the most likely tax deductions on their second job include:
- Cost of goods sold (including freight, insurance and packaging)
- Borrowed money costs
- Insurances
- Working from home costs
- Advertising and marketing (social media, digital marketing)
- Bad debts
One expense that should not be overlooked is tax management expenses. The cost of your accountant, bookkeeper and or tax agent should always be included in your eligible tax deductions. Not only will they assist you in minimising your tax burden, but their cost is a legitimate tax deduction. Don’t wait until the end of the year to become familiar with your likely tax obligations associated with your second job or side hustle. Look now and become familiar with what you will need at tax time. Start putting some rudimentary systems and habits in place, so you are not surprised by the news at year-end or by the effort required to consolidate all your financial records. The best advice is to always consult a professional. We recommend you consider seeking professional advice from a certified accountant before implementing any of the above suggestions.
