Tax season can be a nerve-wracking time for anyone, but it’s especially challenging for those filing a Schedule C on their individual tax returns. This includes a wide range of individuals, from small business owners to independent contractors, side hustlers, and gig economy workers. One costly mistake many of them make is failing to account for all their business expenses. In this blog, we’ll explore the repercussions of missing business expenses and why it’s crucial to stay organized and track every deduction. We’ll also introduce you to a helpful tool, the Side Hustle Tool on My Financial Snapshot, that can simplify the process.

Why Missing Expenses Means You Could Be Overpaying in Taxes

Missing business expenses can have significant financial consequences, potentially leading to overpaying taxes. Let’s break down the key points:

  • Exposure to Self-Employment Tax: When you’re self-employed, you’re responsible for both the employer and employee portions of Social Security and Medicare taxes, known as self-employment tax, which is 15.3%. Missing legitimate business expenses means your taxable income is higher, resulting in a higher self-employment tax bill. Claiming all eligible deductions reduces your taxable income and lowers your self-employment tax liability.
  • Federal Income Tax Impact: Missing business expenses can also increase your federal income tax bill. A higher taxable income means you’re pushed into higher tax brackets, potentially costing you a substantial portion of your tax earnings.
  • State Income Tax Consequences: State income tax laws vary widely, but many states base their calculations on your federal adjusted gross income. Therefore, missing expenses at the federal level can also lead to higher state income taxes.

The Impact of Missing Business Expenses on Different Scale

Let’s put this into perspective. Suppose you have a total income of $10,000 from your side hustle and are in a 30% tax bracket. If you miss $100 in deductible expenses, you’re potentially overpaying taxes by $30. For $500 in missed expenses, that’s $150 down the drain. And for $1,000 in overlooked expenses, you could be overpaying by $300!

Taxes are often the largest expense in an individual budget, and as a small business owner, forgetting to report expenses when you have spent that money is only adding to your tax bill!

Check out a demo video of how easy The Side Hustle Tool is here!

The Side Hustle Tool on My Financial Snapshot

Consider using the Side Hustle Tool on My Financial Snapshot to make this process easier. This user-friendly tool allows small business owners, independent contractors, and gig economy workers to easily and effectively track their business income and expenses. The Side Hustle Tool is the perfect solution if you do not need complex accounting software but need a better way to ensure you take advantage of every tax-deductible business expense.

In conclusion, missing business expenses can lead to overpaying in taxes, potentially costing you hundreds or even thousands of dollars. Stay organized, establish a routine, and consistently track your expenses to avoid this costly mistake. Additionally, consider leveraging tools like the Side Hustle Tool on My Financial Snapshot to simplify the process and keep more of your hard-earned money in your pocket. Remember, every dollar saved in taxes is a dollar that can be reinvested in your business or used to achieve your financial goals.