Side hustle taxes: how much to set aside each month

The first year a side business takes off, the tax bill usually comes as a surprise.

Not because anyone did anything wrong. When you have a W-2 job, taxes come out of every paycheck and you never think about it. When you earn on your own, nobody withholds anything. The money lands in full, it feels like yours, and in April you find out part of it wasn't.

Here's how to avoid that, in plain numbers.

This is general information for U.S. owners, not tax advice. Your situation may be different. A CPA can tell you exactly what to set aside.

1.Know the two taxes you'll owe

Side business profit is taxed twice, in a sense:

• Income tax, at your normal rate, on top of whatever your job pays.
• Self-employment tax, which covers Social Security and Medicare. It's 15.3%, calculated on 92.35% of your net self-employment earnings. At a job, your employer pays half of this. On your own, you pay both halves.

Add those together and a lot of side earners land somewhere around 25–30% of their profit, before any state tax.

2.Set aside a percentage the day money lands

The simplest system we've seen work: open a separate savings account just for taxes. Every time a payment comes in, move a fixed percentage into it. Same day. No thinking.

If you end up setting aside too much, that's the best kind of mistake. It's still your money.

3.Pay quarterly, not just in April

If you expect to owe at least $1,000 for the year, the IRS generally expects estimated payments during the year. Miss them and you can owe a penalty, even if you pay everything by April.

Yes, the periods are uneven. Nobody knows why it works this way, and you get used to it. When a date falls on a weekend or holiday, it moves to the next business day.

4.Use the safe harbor if your income jumps around

Side income is hard to predict. The "safe harbor" rule helps: you generally avoid the underpayment penalty if your payments during the year add up to at least 100% of last year's total tax (110% if your adjusted gross income was over $150,000). You might still owe more in April, but you won't be penalized for it.

There's another option if you also have a W-2 job: raise your withholding there to cover your side income. Withholding counts as if it were paid evenly through the year, which can save you from tracking four deadlines.

5.Lower the bill the honest way

You pay tax on profit, not revenue, so track your real business expenses. For most side businesses the big ones are:

• Business mileage. The IRS standard rate for 2025 is 70 cents a mile, and it adds up fast.
• Software, supplies and equipment you use for the business
• A portion of your phone and internet
• Fees from payment apps and platforms

Keep receipts as you go. Trying to rebuild a year of mileage in April is miserable, and it's usually less accurate.

6.Watch for 1099-K forms

Payment apps and marketplaces report what they pay you on Form 1099-K once you pass $20,000 and 200 transactions in a year. Below that, you may not get a form, but the income is still taxable. Track your revenue yourself so the number you report matches what you actually earned.

One percentage, one separate account, four dates on your calendar. That's the whole system, and it's a lot cheaper than a surprise in April.

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— The Yegly team