You're making money on the side

Separate the money on day one

Open a second checking account for the business. It costs nothing and it is the single highest-return thing you can do.

Mixing business and personal money makes taxes miserable, hides whether you're actually profitable, and undermines any liability protection if you later form a company.

Every dollar in, every dollar out, through that account.

You owe tax on it, and nobody withheld any

Side income is taxable whether or not you receive a 1099 and whether or not it was cash.

You owe income tax plus self-employment tax, which covers both halves of Social Security and Medicare.

Set aside a percentage of every payment as it arrives, in a separate account you don't touch. Guessing at the end of the year is how people end up owing money they've already spent.

If the side income is substantial, look into quarterly estimated payments so April isn't a crisis.

Getting a tax form and owing tax are different things

This is where people get caught, and the rules changed recently in a way that makes it worse.

For 2026, a payment app or marketplace — PayPal, Venmo, Stripe, Etsy, eBay — only has to send you a 1099-K if you received more than $20,000 AND had more than 200 transactions. Both conditions, not either. That threshold was restored by the 2025 tax law after four years of a much lower $600 figure being announced and repeatedly delayed.

Separately, the threshold for a client to send you a 1099-NEC rose from $600 to $2,000 for 2026.

Here is the part that costs people money: those are reporting thresholds for the platform, not tax thresholds for you. You owe tax on every dollar of business income whether or not a form ever arrives. Earning $8,000 through Venmo generates no 1099-K and is fully taxable.

Which makes your own records the only reliable number. The form is a cross-check the IRS receives; it is not your accounting.

One more trap: a 1099-K reports gross payments before fees, refunds and returns. If Etsy processed $22,000 and kept $3,000 in fees, the form says $22,000. You deduct the fees separately, and if you do not, you pay tax on money you never received.

Expenses reduce what you owe, but only if you tracked them

Mileage, supplies, equipment, software, a portion of your phone bill, fees charged by the platform you sell on.

Track them as they happen. Reconstructing a year of receipts in April is how deductions get lost.

The rule is that an expense must be ordinary and necessary for the business. Personal spending doesn't become deductible by putting it on the business card.

Do you need an LLC?

Usually not on day one. You can operate as a sole proprietor under your own name and be entirely legitimate.

An LLC mainly provides liability separation, which matters more as you take on real risk — working in people's homes, handling their property, having employees.

An EIN is free from the IRS and lets you avoid giving your Social Security number to every client.

Check whether your city or state requires a business license for what you do. Many do, and the fee is usually small compared to the penalty.

Setting a rate that actually covers your costs

Almost everyone starting out prices off what they think someone will pay, rather than off what the work costs them. That is how people end up working for less than minimum wage.

Start from what you need to keep, then add back what comes off the top. Self-employment tax is 15.3%. Platform or processing fees are commonly 3% to 15% depending on where you work. Materials, software, mileage and equipment are real costs. And unpaid time — quoting, messaging, travel, revisions — is often a third of the hours you actually spend.

A rough working rule: an hourly rate that matches a job’s wage leaves you worse off, because that job included the employer’s half of payroll tax, and possibly insurance and paid time off. To match a $20-an-hour job you generally need to charge meaningfully more than $20 an hour.

Raise prices on new clients first. That is the lowest-risk way to find out whether your rate was too low, and it usually was.

Getting paid, and what to do when you are not

Put it in writing before you start, even for a friend. What the work is, what it costs, when payment is due, and what happens if the scope changes. A two-paragraph email that both people reply to is a contract.

Take a deposit on anything substantial — commonly 25% to 50% up front. It filters out people who were never going to pay and it means you are not financing someone else’s project.

Put a due date on the invoice rather than “net 30” or nothing at all, and say what a late payment costs. A stated late fee changes behaviour even when you never charge it.

When an invoice goes unpaid: a polite reminder the day after it is due, a firmer one a week later naming the amount and the date, then stop work and say so. Most non-payment is disorganisation rather than refusal, and most of it resolves at the second message.

If it does not, small claims court exists for exactly this and does not require a lawyer. Limits vary by state, commonly somewhere between $5,000 and $10,000. Section 19 covers the version where you are an employee rather than a contractor.

Where to check this yourself

irs.gov for self-employment tax, quarterly payments, EINs, and the current mileage rate. sba.gov for licensing and getting started.