Zakat and the Side Hustle: A Spicy Dilemma

Zakariya is the mastermind behind a small-batch, lacto-fermented, flavor-forward hot sauce business. As jars of fiery goodness ferment away, he finds himself pondering a perplexing question: does he owe Zakat on these tangy treasures?

The Side Hustle Saga

In today's gig economy, side hustles are as ubiquitous as avocado toast at a brunch spot. Whether it's crafting handmade candles or flipping sought-after electronics, the question of Zakat lurks like a spice waiting to be added to the mix.

Cracking the Zakat Code

Let's dive deeper into Zakat on side hustle earnings through Zakariya's ventures:

• Sale of Goods:
  • Ruling: Zakat is due on the value of inventory and materials. Take Zakariya's hot sauces, for example. He calculates Zakat based on the market value of raw materials and the sale price of finished products in his inventory.
  • In Numbers: For instance, Zakariya has peppers fermenting away, valued at $100, and will be used to make hot sauce. This would be treated as raw materials in the Zakat calculation. He also has 50 bottles of hot sauce that will have a retail value of $500 total. These would be treated as business inventory in his Zakat calculation.
  • Zakat Calculation: $100 + $500 = $600.    2.5% of $600 = $15 of Zakat owed.
• Resale Market:
  • Ruling: Zakat is due on the market value of inventory. Zakariya isn't just about hot sauce; he's also the go-to guy for tech enthusiasts. With PS5s, Xboxes, and iPhones flying off his virtual shelves, Zakat is due on the market value of his inventory.
  • Numbers: Zakariya has 5 PS5s ($500 each), 5 Xboxes ($350 each), and 10 iPhone 15s ($1,400 each). His checking account holds $7,000, meeting the minimum nisab amount for a year. Total value: $7,000 + $2,500 + $1,750 + $14,000 = $25,250.

• Zakat Calculation:  On Zakariya’s Zakat annual calculation date, he is in possession of these items, so Zakat due is $25,250 X 2.5% = $631.25 of Zakat Owed
• Note: You do not need to be in possession of inventory or assets for 1 yr before you owe Zakat, this is a common misconception. You owe Zakat on all of these assets, regardless of how long you have held them, once you reach your annual Zakat calculation date, as long as you have had more than the nisab in your possession for 1 yr.
• Extra Cash Flow:
  • Ruling: Zakat applies to earnings contributing to savings or investments. Let's say Zakariya earns $500 a month from driving for Uber. If he saves $300 of that income each month, Zakat applies to the $300 saved by the time his Zakat is calculated.
  • Numbers: Let's say Zakariya earns $500 a month from driving for Uber and saves $300 of that income each month.
  • Zakat Calculation: On Zakariya’s Zakat annual calculation date, he has $3,600 in savings. $3,600 X 2.5% = $90 in Zakat owed
• Property Plays:
  • Ruling: Income from rental properties or Airbnb listings is subject to Zakat. Zakat applies to the earnings leftover, or in his possession, on the Zakat due date from Airbnb, property rentals, or similar income over the year.
  • Numbers: Suppose Zakariya earns $1,000 per month from renting out his spare room on Airbnb. After expenses for maintenance of the property, he’s left with $200 per month and on his Zakat due date he has $2,400
  • Zakat Calculation: $2,400 x 2.5% = $60 of Zakat Owed
• Note: If Zakariya intends to flip his rental property, it then becomes business inventory and he owes Zakat on the entire market value of the property.

Remember, Zakat is due on wealth and business inventory, regardless of how long you've held them. But if you spend all your side hustle earnings before your Zakat due date, no Zakat is owed.

Wrap it Up

In essence, whether you're fermenting hot sauce or flipping gadgets, Zakat on your side hustle depends on its impact on your wealth. By navigating the intricacies of Zakat, you can ensure your entrepreneurial journey remains spiritually aligned while embracing financial success.

Just as Zakariya meticulously crafts his hot sauces to achieve the perfect balance of flavor, so too must we carefully calculate our Zakat obligations to achieve the perfect balance of spiritual and financial fulfillment.

So, the next time you're hustling away, don't forget to factor in Zakat—it's the secret ingredient to a spiritually and financially fulfilling side hustle, much like the secret ingredients that make Zakariya's hot sauces truly unforgettable.

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