If you’re a side hustler, but also have a 9 to 5 job, you might wonder how all of this will affect your taxes. You’re familiar with the W-2 life, but what about all of your side hustle income? Do you have to report it? Read on to learn more about what you need to know about side hustles and taxes.
Here’s the deal. If you make any money at all, Uncle Sam wants his cut. So whether you’re making $50 as a babysitter or $400 as an Uber driver or $1,000 doing graphic design on the side, you must report it. Even if you get paid under the table in cash, technically you’re supposed to report that too.
Many side hustle gigs are 1099 gigs, which means it’s independent contract work. As an independent contractor, you’re basically running your own mini-business in the eyes of the IRS, whether you think so or not.
The problem is that 1099 work doesn’t take out taxes. So if you have a 9 to 5 job that withholds some taxes but also have 1099 work that withholds nothing, it can make things a bit messy.
Because you are required to pay taxes on 1099 income, it’s wise to set aside 30 percent of your income for taxes. I know, it sounds like a lot right? But it’s better to be safe then to end up in IRS debt because you weren’t prepared.
If you have side hustle income, you will need to report it on your tax return. You will need to get your 1099s from the various places you worked. You will typically get this via mail or in some cases, they may have them available to you on the website platform you are working with.
Your 1099 shows how much income you earned for the tax year. That income will be added to your tax return and you will need to pay taxes on that amount.
Here’s what can be a bit confusing though. You will only get a 1099 if you earned more than $600 in a calendar year from an employer. So if you made $50 or $550, you won’t receive any paperwork. But that doesn’t mean you don’t report it. Even without 1099 paperwork, you must report the side income you earned.
You will report your side income on Form 1040. There’s another layer to this, too. If you’re side hustle is earning good money on the side and is beyond hobby status, the IRS might consider you to be “self-employed”. Even if you still have your 9 to 5 job.
The IRS defines you as self-employed if your goal is to make a profit and your side gig is consistent.
You must pay your taxes or you could be hit with a penalty. You can avoid this by setting aside money for your taxes and reporting all your side earnings. If you have a legit side biz, you’ll likely want to start making quarterly estimated payments.
Freelancers and business owners pay taxes quarterly. While paying taxes four times a year seems like a pain, it can help you be more accurate with your tax payments as you’re paying based on your earnings that quarter.
Having side income can alter your tax return. You might think you’ll get a refund and then add your side income and see that number dwindle down, because you need to pay taxes on that money. How your side income will affect your taxes depends on how much you’re withholding from your 9 to 5 job. If you have questions or concerns, you can talk about that with a tax professional who can help.
If you’re serious with your side biz and considered “self-employed”, you must file a Schedule C which reports your income and expenses. The good news is that you can deduct your business expenses which will lower your taxable income. In other words, your expenses will lower the amount of money that you will be taxed.
So for example, if you earned $7,000 but spent $2,000 on your business, your taxable income would be $5,000. This can help lower the amount you pay in taxes, so you’ll want to keep track of all your business expenses in order to report them.
Side hustlers of all kinds must report their income to the IRS, whether you’re making a few extra bucks or you’re ballin’ with your side biz. Though it can be a pain, it’s better to face it head on now and give Uncle Sam his cut to avoid any further complications or tax penalties. If you need assistance or advice, consult a tax professional to help you with your unique situation.
