Mistakes to avoid as you ensure your side gig is worth it

At the start of the year, many people have their eyes set on goals. Some of these goals may include increasing your income, starting a dream business, or both if you’re reaching for the stars. Before you get your hands dirty in the sometimes chaotic combination of formal employment and entrepreneurship, here are a few pitfalls to avoid.

Not having a plan

People get side hustles for different reasons.

But you need a plan for that motivation to help make your side gig worthwhile. Think about having goals for your income and a strategy to help you achieve those goals.

For instance, you could divert funds from your side hustle into retirement savings accounts such as an IRA. This is a way to put away more for retirement, and you could reduce your taxable income, depending on how much you make, because contributions may be tax-deductible.

Eric Nisall, an accountant in Coral Springs, Florida, suggests having what he calls a “failure fund” if your goal is to transition into full-time entrepreneurship. It’s something he developed when he began the journey of full-time employment and building a business.

“When at my last two

CPA firms, I was working at building my own business at the same time. I realized, if I’m going to do this, I need to start putting money away so that if I don’t grow, I (won’t) suffer,” he says.

Nisall put money he saved from coupons and any extra bucks he made from a raise or overtime into that fund.

Not being aware of taxes

Oftentimes, people think having a side hustle means they can make extra money without reporting it, says Atiya Brown, a certified public accountant and certified financial education instructor in Dallas.

“I think that people need to realize all of their income is going to be taxed,” she says. “So, if they’re starting a side hustle, they need to get organized so that they don’t miss any income that needs to be reported because then the interest and penalties are going to pile on.”

The IRS says anyone who earns $400 or more from self-employment must file a tax return.

I was not organized and didn’t have a solid plan for paying taxes when I first started. When I realized I owed the IRS almost $15,000 in both taxes and penalties, I clutched my pearls. I thought I would need to save and pay my taxes in one large sum. Now, I know there are multiple ways to pay self-employment taxes.

The choices include estimated quarterly tax payments, changing your W-4 withholdings so it covers your self-employed taxes, or paying in one lump sum, Brown says.

Brown adds that the IRS has penalties for underpaying on your taxes.

To help avoid this, you can use the IRS withholding calculator to see how much you should withhold to cover your side hustle taxes.

Putting main income in jeopardy

Having a 9-to-5 job and a side hustle means you’re choosing to work during your free time. For this reason, you want to make sure your side gig is worth your time financially and healthwise.

Overworking can also affect your health, which can put your main source of income at risk, Nisall says.

“You gotta make sure that you’re eating, sleeping, taking care of your body and your mind,” he says.

Speaking of putting your main job at risk, consider asking your employer what its policies are around side gigs. My employer shared rules around the type of side work I could do without violating company policy.