Side Hustles and Taxes
Do you earn extra income from side hustles like apps like car sharing, ride platforms, resale items, auction sites, or delivery apps? If the answer is yes, you must report this income if you make over $400 from your side hustle regardless of whether you receive a 1099-k form from the app company.
Schedule C and Your Side Hustles
A side hustle is considered a business, not a hobby if you intend to profit from it. The IRS has some questions to help you determine if your
activity is a hobby or a business. If it’s a business, you need to keep track of your income and expenses and file a Schedule C with your tax return. You may also need to pay self-employment tax on your net earnings, which covers Social Security and Medicare taxes employers typically withhold.
One of the forms you may receive from your side hustle app is a 1099-K, which reports the gross amount of payments you received through the app. This form is issued if you have over 200 transactions and more than $20,000 in fees in a calendar year. However, even if you don’t meet these thresholds, you still need to report your income on your tax return.
To fill out a 1099-K, you must report the gross payment amount in box 1a on line 1 of Schedule C. Then, you must deduct your business expenses on lines 8 through 27 of Schedule C. These expenses may include gas, mileage, parking fees, tolls, supplies, fees, commissions, and other costs related to your side hustle. You can find more information on deductible expenses in Publication 535.
Your gross income and expenses differ from your net profit or loss, which you report on line 31 of Schedule C. This amount written on line 3 of Schedule SE calculates your self-employment tax. You can find more information on self-employment tax in Publication 334.
Filing Taxes
Filing taxes for your side hustle may seem complicated, but doing it correctly and on time is essential. You may also need to make estimated tax payments yearly to avoid penalties and interest. You can find more information on estimated taxes in Publication 505. If you need help with your taxes, consult a tax professional.
Your guide to side hustle taxes should prepare you for that tedious 1099-k. If you make deliveries or provide services besides an app a 1099-MISC for small businesses and independent contractors will suit your needs. If you have any questions about whether you should fill out a 1099-MISC or 1099-k contact your local small business tax consultant. If you live in the Triangle near Cary, NC, consider Franek Tax Services as your official small business tax consultant. Don’t panic! Call Joe Franek!