Millions of Americans take on side hustles in addition to their regular jobs, whether to boost their savings, pay down debt, or get their hands on more spending money for leisure and vacations. If you have a side job, filing your taxes could get a bit complicated, especially if you're used to reporting a single income from a salaried position and calling it a day. Here are a few things to know as you gear up to prepare your upcoming tax return.
1. You're required to report all of your income
Any time you earn money, whether it's from your primary job, your investments, or your bank account (in the form of interest), the IRS unfortunately gets a share of it. As such, you're obligated to report whatever income you earned from your second gig, even if it's a relatively small amount.
You should get a 1099 form, either electronically or in the mail, from each company that paid you $600 or more last year. The IRS will get a copy of each 1099 that's issued to you as well, so don't even think about sticking those forms in the trash and pretending they don't exist. If the IRS sees income on record that you don't acknowledge on your return, it could easily open the door to a tax audit. That said, you don't get out of reporting your income just because you didn't receive a 1099 for it.
2. You can deduct expenses that helped you do your job
The saying "it takes money to make money" generally holds true in the world of side hustles. Often, you'll need to invest some of your own resources into doing that second job. The good news is that the IRS allows you to deduct those expenses on your tax return, thereby lowering your total tax burden.
What expenses might you deduct? It depends on the nature of your work, but generally speaking, you can deduct equipment or supplies that directly tie into your work. For example, if you did freelance IT work on the side and bought cables and routers, those costs are deductible. If you sold your hand-made clothing, your yarn or knitting supplies are deductible as well. If you worked for a ride-share company, you can claim several vehicle-related expenses, like mileage, insurance, and even car washes. And if you set up a dedicated space in your home for your side work (say, for tutoring children or doing graphic design), you can look into claiming a home office deduction.
If you're not sure what expenses you're allowed to deduct for your side hustle, it pays to consult a tax professional. Spending a small amount for personalized guidance can help ensure that you get the tax benefits you're entitled to.
3. You might owe the IRS money if you didn't pay estimated taxes during the year
When you take home a paycheck as a salaried employee, the amount you receive will be your post-tax earnings, because your employer will withhold the right amount of taxes for IRS purposes. When you make money from a side hustle, however, you'll often be responsible for paying taxes on your earnings yourself. Therefore, if you didn't pay estimated taxes throughout 2018, you might land in a situation where you owe the IRS some money this year.
Keep in mind that if you underpay your taxes too much, the IRS will hit you with a penalty. If you expect to continue to earn steadily from your side job, plan on paying quarterly taxes to avoid trouble down the line. For 2019, quarterly taxes are due on April 15 (the tax filing deadline), June 15, September 15, and Jan 15, 2020.
Having a side hustle is a great way to increase your personal cash flow and, in some cases, even further your career on a whole. Just be aware of the tax implications involved, for better and for worse.