Jobs on the side aren’t completely off the books. You have to factor in all those glorious details as well for the purposes of your taxes. And yes, I’m talking about everything from working for the Wag! dog-walking service every morning at the crack of dawn to driving for Uber a few nights a week. And it is not only side-business activity that has to be reported. Income from hobbies has to be reported as well. You make mobiles out of tree branches? You make your own wine in your second bathroom? Does your hobby provide you with income? Then it may be subject to reporting requirements and possibly is eligible to have expenses deducted. Here are some of the side-hustling details that you may not be aware of:
A side hustle is still… a hustle
What this means is that the IRS still gets their cut. They’re like the mob in this respect. They don’t overlook any source of revenue, no matter how small. So, it doesn’t matter if you go into an office in a suit and tie five days a week for 40 hours, or if your side-job mainly involves you desperately running after a giant Saint Bernard Mountain Dog named Mustard who just got off his leash in hot pursuit of a squirrel. You are still going to have to pay up. Sadly, as I’m sure you have already guessed, what this means is that you have to report to the IRS any compensation from these gigs just like any other job. Even if you lost the dog.
However, side hustles are reported differently
Side hustles have to be reported via different sections of the IRS form (because the IRS likes to make your life a living hell). You’ll need line 21 for hobby income versus Schedule C for business income. Why? Who knows? But you better make the distinction all the same. Also, for the purposes of the self-employment tax there is yet another difference in regards to your side-hustling occupation. But this is good news because business income is subject to self-employment taxes while hobby income is generally not (it is labeled as hobby income presumably to shame us.) Rule of thumb: If you are doing the gig for the purpose of making money it is a business. If you are in it for relaxation but you are lucky enough to be making money, it is a hobby.
When it comes to deductions, if you earn income in the pursuit of a hobby, you can offset the income with deductions but you cannot claim deductions that exceed your income: If you spend more than you are making then you can’t receive any deductions. If you are in business, you can take all your deductions even if it makes your enterprise unprofitable.
Even if it isn’t a conventional “job” you will still want to keep records to document your income and your expenses. For instance, it is a good idea to keep a logbook of the amount of time worked, to save invoices, and to keep receipts (preferably with annotations about the nature of each expense which can be as simple as noting the nature directly upon the receipt in question). If you are attentive to these details they should be handleable, but if you let them slip they can easily get out-of-handleable.
Lastly, your side-hustle might necessitate Estimated Payments to the IRS. What this means is that if you are, for instance, making a decent amount of money by way of revenue coming in from ads on your blog, then you are going to want to plan ahead for tax time. Anything more than $1,000 dollars in taxes will affect your tax bill enough for what is called “estimated payments”. To make estimated payments, you’ll use the federal form 1040ES, Estimated Tax for Individuals. These taxes must be paid quarterly. If you miss payments, you may incur penalties, so be sure to stay on top of ’em!
Unfortunately, the IRS is a fastidious and ever-observant tax-collection overlord. What this means is that our side-hustles aren’t escaping unnoticed. Even if you just pick up a couple of hours here and there every week to try and dig yourself out of debt or to give yourself more latitude to pursue your dream of being a novelist, you’re still going to have to pay the Taxman a little bit of dough. So, it is best to be prepared!
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