Ben Franklin aptly stated in a 1789 letter to Jean-Baptiste Leroy: “In this world, nothing can be said to be certain, except death and taxes.” This truth holds particularly true when it comes to a successful side hustle.
A profitable side hustle not only benefits you, but it also garners the attention of your ‘silent’ partner, the Internal Revenue Service. Freelancing, running a small business, or working a second job offers additional income without necessitating leaving your day job. However, much like your primary income, earnings from a second job or multiple side gigs must be reported on Form 1040 during tax season. Navigating income tracking and managing taxes for multiple jobs can prove complex.
Here are some tips to keep both you and the IRS content with your side hustle’s success:
Understanding Your Tax Status: Recognize that the IRS typically views income from side jobs as self-employed income. Consequently, you’re obligated to pay both income tax and self-employment tax (which covers Social Security and Medicare taxes typically shared with an employer) on that income.
Tracking Your Expenses: As a side gig worker, you can usually deduct business expenses from your taxable income. These expenses could encompass materials, home office costs, travel, and other expenditures directly linked to your side job. Maintaining comprehensive records of these expenses is crucial.
Paying Quarterly Estimated Taxes: If you anticipate owing $1,000 or more when filing your annual tax return, you’re usually required to make estimated tax payments throughout the year.
Understanding 1099-MISC, 1099-NEC, and 1099-K Forms: If you earn $600 or more from a client or platform, you’re likely to receive a 1099-MISC, 1099-NEC, or 1099-K form, documenting your income. You’re responsible for reporting this income even if you don’t receive the form.
Utilizing Tax Software or a Tax Professional: Given the complexities of side gig worker taxes, using tax software or seeking advice from a tax professional can ensure accurate income and expense reporting, while optimizing applicable tax deductions.
Considering Retirement Savings: As a self-employed person, you have access to retirement plans that may allow you to save more than traditional plans. These plans could potentially reduce your taxable income.
Disclaimer: This post provides general information and should not be interpreted as financial or legal advice. We recommend consulting with a tax professional for guidance tailored to your specific circumstances.
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