Side income can accelerate your financial goals—but only if you track it properly and understand what you're actually earning after expenses and taxes.
Types of Side Income
| Type | Examples | Tax Complexity |
|---|---|---|
| Gig work | Uber, DoorDash, TaskRabbit | Moderate |
| Freelance | Writing, design, consulting | Moderate |
| Online | Selling, courses, content | Moderate |
| Passive | Dividends, rentals, royalties | Varies |
| Cash | Tutoring, odd jobs, crafts | Simple |
Tracking Income
Why Track?
- Know your actual earnings
- Calculate true hourly rate
- Prepare for taxes
- Understand profitability
What to Track
| Field | Example |
|---|---|
| Date | 1/15/2026 |
| Source | DoorDash |
| Gross earnings | $125.00 |
| Expenses | $18.50 (gas, supplies) |
| Hours worked | 4 hours |
| Net earnings | $106.50 |
Pro Tip
Use a simple spreadsheet or tracking app. Update weekly—don't let it pile up.
Your True Hourly Rate
The headline pay often doesn't reflect reality.
Gig Work Example
DoorDash delivery:
- Gross earnings: $25/hour advertised
- Gas: -$4/hour
- Car maintenance: -$2/hour
- Phone/data: -$0.50/hour
- Self-employment tax: -$3.50/hour
- True rate: ~$15/hour
Freelance Example
Freelance design:
- Project fee: $500
- Time working: 6 hours
- Admin/communication: 3 hours
- Software costs: $30
- True rate: ($500-$30)/9 = $52/hour
Watch Out
Don't forget hidden time: driving to gigs, admin work, client communication, marketing yourself. It all counts.
Tax Implications
Self-Employment Tax
Side income as a sole proprietor faces:
- Income tax (your bracket)
- Self-employment tax: 15.3% (Social Security + Medicare)
Real Example
$10,000 in side income at 22% bracket:
- Income tax: $2,200
- SE tax: $1,530
- Total: $3,730 (37.3%)
Quarterly Estimated Taxes
If you expect to owe $1,000+ in taxes, make quarterly payments:
- April 15
- June 15
- September 15
- January 15
Watch Out
Missing quarterly payments = penalties. Set aside 30-35% of net side income for taxes.
Deductible Expenses
Track business expenses to reduce taxable income:
- Equipment and supplies
- Software and subscriptions
- Mileage (67¢/mile in 2024)
- Home office (if dedicated space)
- Professional development
Setting Up Systems
Separate Accounts
Open a dedicated checking account for side income:
- All earnings deposited here
- All business expenses paid from here
- Makes tracking and taxes simpler
Automatic Tax Savings
When income hits, immediately transfer 30% to a tax savings account.
Quick Win
Automate this. If $500 comes in, $150 goes to tax savings before you can spend it.
Monthly Review
Each month:
- Calculate total gross income
- Subtract expenses
- Calculate hours worked
- Compute true hourly rate
- Verify tax savings is adequate
Is It Worth It?
Ask yourself:
Financial Check
- Does true hourly rate beat alternatives?
- Is it moving you toward goals?
- Are taxes accounted for?
Life Check
- What else could you do with this time?
- Is it affecting your health/relationships?
- Do you enjoy it?
"I did DoorDash for 6 months before calculating my true hourly rate: $11. I could have worked overtime at my job for $23. Sometimes the side hustle isn't the right hustle."
Scaling Up
If side income is working:
Level 1: Optimize
- Raise prices
- Work during peak hours
- Reduce expenses
Level 2: Systematize
- Create repeatable processes
- Build recurring revenue
- Develop referral systems
Level 3: Grow
- Hire help
- Expand offerings
- Consider formal business structure
The Bottom Line
Side income is powerful but requires clear tracking. Know your true hourly rate, set aside money for taxes, and regularly evaluate whether it's the best use of your time.