"When Your Side Hustle Strikes Gold... Smart Strategies to Avoid the Tax Bomb"

Currently, there is a growing trend of people engaging in side hustles through various online platforms such as YouTube and web novels. These individuals are classified as "N-jablers" (those with multiple jobs), and some of them have achieved remarkable success. However, when the income from these side hustles suddenly increases, failing to prepare for taxes properly can result in a hefty tax bill. Taxes are imposed at a higher rate as income increases. Therefore, let's explore "3 Strategies to Avoid the Tax Bomb When Side Hustle Income Surpasses Main Income."

 

 

Plan Your Tax Savings Early

Typically, when your monthly income starts accumulating to around 5 to 6 million won, it's time to devise tax-saving strategies. Especially if your side hustle income has increased this year, you should plan and execute your tax-saving strategy by no later than November of this year.

 

According to data from the Korea Economic Association and Statistics Korea, there were 546,000 new side hustles started last year, a record high. This represents a 30.3% increase compared to five years ago in 2017 (419,000 side hustles). Particularly, N-jablers in their 20s and 30s increased by 36.7%, from 79,000 in 2017 to 108,000 in 2022.

 

Establish a Corporation for Tax Savings

When your side hustle income begins to accumulate significantly, establishing a corporation can be a advantageous choice. The corporate tax rate is 9.1%, lower than the comprehensive income tax rate of 64.5% paid by individuals. Therefore, setting up a corporation can result in significantly lower tax rates depending on your situation.

 

For example, if you earned approximately 200 million won, the corporate tax would be around 18 million won, while as an individual, you would pay 60 million won in comprehensive income tax. Thus, establishing a corporation can result in tax savings of around 40 million won.

 

Utilize Yellow Umbrella Deductions and Join an Individual Retirement Pension (IRP) Plan

Another tax-saving strategy is to utilize Yellow Umbrella Deductions and join an Individual Retirement Pension (IRP) plan. With IRP, you can receive a tax deduction of 16.5% on contributions, up to 9 million won annually. Yellow Umbrella Deductions also allow deductions of up to 5 million won. Leveraging these deductions can help reduce your tax burden.

 

Be Cautious About Sharing Side Hustle Information with Others

Lastly, it's essential to be cautious about sharing information regarding your side hustle income with people in your circle. Some companies do not allow employees to engage in multiple jobs, and some employment rules restrict side hustles. Therefore, it's advisable not to reveal the fact that you're engaged in a side hustle to those around you.

 

Increasing your income through a side hustle can be an attractive option, but it can also result in higher taxes. Therefore, to effectively manage and save on taxes, it's crucial to consult with a tax professional and devise a tax-saving strategy in a timely manner. Even as you earn more money through your side hustle, smart planning can ensure that your profits don't dwindle due to tax issues.