In 2019’s gig economy, lots of Americans have side hustles. But do you know how to handle your side job income when you file your taxes? Our experts here at Tax Defense Partners give you our top 3 tax tips for side jobs to help you understand how your second job income should be handled at tax time.
1. Know How to File Your Extra Income
First, let’s talk about the different kinds of side jobs. You can have seasonal jobs, very occasional side job work, and regular side work that you devote quite a lot of your time to.
If your side job is a seasonal job or very occasional side work, the IRS would generally classify your income earned as “other income.” However, if you devote a significant amount of time to your side job, the IRS may consider you self-employed, which can change how you’ll need to do your taxes. The IRS looks at two things when evaluating whether or not a side gig is other income or self-employment income: whether or not your primary purpose is to make a profit and whether or not your side work is regular or continuous.
If you do qualify as self-employed, you’ll need to remember to report your self-employment income on Schedule C.
2. Report All Your Income
Here’s another very important tip for your side job income: you need to report all of it on your tax return. It’s a common misconception that you don’t need to report income if you made less than $600 from any one side job (or any one client). It’s easy to see why people think this: it’s because you don’t need to have a Form 1099-MISC for jobs under $600. And if there’s no Form 1099-MISC, whoever paid you for the job doesn’t need to report their payment to you to the IRS.
However, you still need to report that income to the IRS. And this includes reporting cash income. If you fail to report your full income to the IRS, you can face penalties and other unpleasant IRS actions. So don’t risk it— report all your income from your side job.
3. Don’t Miss Out on Relevant Deductions
Self-employment income from a side job comes with more opportunities for deductions. To save yourself the most money at tax time, it’s crucial that you understand what kinds of deductions you can claim.
Essentially, self-employed people can deduct any expenses that are related to their business. And you do not have to be solely self-employed to deduct business expenses. For example, if you work a regular 9 to 5 during the day but then drive for Uber or Lyft on nights and weekends, you can still deduct business expenses that are related to your ride share driving business.
There are two types of business expenses that you can deduct: ordinary expenses and necessary expenses. Ordinary expenses are things you would commonly need for your business. For example, a painter would need art supplies. Necessary expenses are things that are helpful and appropriate for your business. For example, that same painter might get a piece of furniture specifically to store their art supplies.
Some common deductions for side gigs include things like business mileage on your car (this is a big one for ride share drivers), the business portion of your home if you have a dedicated office space, dues and subscriptions related to your business, and necessary tools and equipment.