During college, I had a job every summer. After my freshman and sophomore years, there were full-time internships with companies that issued me a Form W-2 and offered benefits, and in those years I reported my income from my W-2 form.
There was one year in which I didn’t have a full-time internship because of some travel and I made extra money doing the occasional side hustle. I sold some software application I’d written, I re-sold items on eBay and other similar side gigs.
When I think back to that experience, I recall reporting that income as “other income” on my tax return and not giving it a second thought. As it turns out, there are rules to determine what kind of income it is.
Always Report Income
First things first, if you earn money during the year through a side-gig, you have to report it on your tax return. Side gigs are great, but they are not reported the same as W-2 wage income, so it’s important to keep track of your earnings and taxable income.
Are You Self-Employed?
If you regularly earn an income from a side-gig, the IRS will consider it self-employment income.
More importantly, if that income is significant, you may need to make quarterly estimated tax payments if you think you will owe $1,000 or more in federal taxes for the year. When you work for an employer, they regularly take a percentage of your paycheck to cover your taxes. When you work for yourself you don’t have an employer to take taxes out so that means you may need to pay those taxes every quarter.
For example, if you decided to start driving for a rideshare service like Uber or Lyft, you aren’t considered an employee of the rideshare company. You’re considered an independent contractor or self-employed and at the end of the year, you’ll get a tax summary that includes your earnings and expenses.
You may be issued two IRS forms:
- A 1099-K if you earned more than $20,000 in customers payments and 200+ rides
- 1099-MISC if you earned any promotions, referral, or other miscellaneous bonus
Even if you don’t make enough to receive a 1099-K from a third party provider or a 1099-Misc for income earned as a freelancer or contractor, you still need to report your income on your taxes.
The next question you might have is whether you owe self-employment tax. Generally speaking, you will owe self-employment tax if your self-employment earnings exceed $400 a year. There are some exemptions but most folks who earn over $400 a year in self-employment income need to pay taxes on their earnings.
How to File Your Taxes
Don’t worry about knowing these rules. If you are self-employed you can use QuickBooks Self-Employed to easily track your business income and expenses year round and also figure out your estimated tax payments. You can then export your information to your TurboTax Self-Employed tax return at tax-time and TurboTax Self-Employed will automatically file the right forms for your business based on your information.
Side gigs are a great way to help with bills, boost savings or pay down debt but make it easy at tax-time and track your income and expenses year round.