listen on Apple Podcasts | Spotify
Listen to Taxes Made Simple by Yahoo Finance and TurboTax to get help in filing your taxes this year.
Transcript below:
Janna Herron: This is taxes made simple by Yahoo finance and turbo tax. I'm Janna Herron.
So let's talk about how your side gig might affect your taxes this year. How much income you earn from your side gig will determine how you need to report that income to the IRS. If your side hustle is a hobby or something you do only occasionally, then the IRS probably just considers this type of job and the income that you get from it as other income for tax reporting purposes. If you devote a significant amount of your time and get a substantial amount of income from your side hustle, the IRS may actually consider you as self-employed. So that would require you to file a schedule C with your tax return, Schedule C reports, business income, and expenses.
So let's start with the first one. Say it's just a hobby and you have a little bit of income coming in. If you're a freelancer or a contractor and you've got more than $600 last year from any side gig, then you will get a 1099 MISC form for miscellaneous income. The company or individual that you provide your services to should be sending you that 1099 MISC as well as sending a copy to the IRS. You'll find in box seven the gross earnings meaning before taxes in the 1099 MISC. If you sell stuff on eBay or Etsy or even if you're a rideshare driver, in some cases you may get a 1099K instead to report your income.
You'll use these 1099 forms on your regular tax return to help figure out how much income you earn during the year on top of your regular job. But if you're earning more from your side gig and maybe it's close to being an actual job, you'll have to file the schedule C. the important thing to remember is that you also can take business expense deductions which lowers your taxable income. Some common ones are deductions for expenses related to your home mileage on your car, dues and subscriptions you pay to business-related organizations, tools and equipment that you use for your side gig, any tuition for education that's related to your side gig. If your side hustle is bringing in so much money or you're spending a lot of time that the IRS thinks of it really self-employment rather than a hustle, then you may actually need to pay quarterly estimated taxes.
What does that mean? In our regular job, your employer withholds taxes from each of your paychecks and those taxes go to uncle Sam, and so you're paying your taxes as you go. As you earn money, that's not the case. If you're self-employed and your side hustle is big enough to be considered self-employment, that means you actually have to pay as you go. But you're responsible for sending those taxes to uncle Sam and he must do it quarterly. So what you need to do is estimate how much in taxes you'll owe. Divide that by four and make your quarterly payments. Here's when you should make your quarterly estimated payments to uncle Sam. April 15th, June 15th, September 15th, and January 15th of the following year. You make estimated tax payments using form 1040 ES. if you don't make these quarterly payments, if you don't make these quarterly payments, you may be charged a penalty for underpayment by the IRS.
If you're not sure if you need to pay estimated tax during the year, go to the IRS website and use the worksheet to find out if you need to pay quarterly estimated taxes. Another tax benefit you might receive if you're considered self-employed or you're a freelance worker is using a solo 401k or a SEP IRA to save for retirement, you can contribute to a solo 401k or to a SEP IRA until April 15th to qualify for a federal tax deduction. So if you're looking to lower your taxable income, maybe your side hustle will allow you to do this. Side gigs are becoming a lot more popular, so it's important to know what the tax consequences are of your hustle and that's it for side gigs and taxes. This is taxes made simple from Yahoo finance and TurboTax. Please head over to Apple podcasts and leave a five-star rating and review there. Until next time. Thanks for listening.
