Have a Side Hustle? Here's What You Need to Know About Filing Taxes
- It's important to report all of your income to the IRS when filing taxes, including earnings from a side gig.
- You can also claim a deduction for expenses you incurred in the course of your side hustle.
Workers with side jobs need to file their taxes carefully to avoid issues.
Maybe you got a side hustle in 2021 because your finances took a hit during the pandemic and you wanted to fuel your personal recovery. Or maybe your goal in getting a side hustle was to simply pad your savings account or sock away money for a big vacation in 2022.
No matter your motivation, if you earned money on top of your main job in 2021, your upcoming tax return needs to reflect that. Here's what you need to know.
You must report all income
Even if you were paid for your side hustle in cash, that's income you should be reporting to the IRS. If you were hired on a freelance basis by a company or client that paid you $600 or more in 2021, you should have received a 1099 form summarizing those earnings. If you're not sitting on a 1099 you think you should have, reach out to the company you think owes you one and inquire.
For each 1099 form you receive, the IRS also gets a copy. If you don't report the wages listed on that 1099, the IRS will tag your return due to that inconsistency. That's why it's so important to report all of your earnings -- even if you're missing a 1099 form or two.
Now you may be thinking: "How do I report my earnings without a 1099?" Ideally, you'll have kept your own records of those payments, whether by listing them on a spreadsheet or seeing them hit your bank account. In the absence of a 1099, you can use your own records to report your income on your tax return.
Keep in mind if you weren't taxed on your side hustle income upfront (which would be the case if you were paid on a freelance basis), you might owe the IRS money on those earnings now. In that case, you'll either send the agency a payment by April 18, which is when taxes are due this year, or see the amount you owe deducted from your refund.
Generally speaking, you're supposed to make estimated tax payments during the year if you're paid on a freelance basis. The IRS can penalize you for underpaying your taxes too much, so if you're earning a lot from your side hustle, you'll want to start paying the IRS a chunk of your income every quarter to avoid issues down the line.
You can also claim deductions
While you're required to report and pay taxes on your side hustle income, you can also deduct the expenses you incurred doing that work. Imagine you earned $3,000 from your freelance writing side hustle in 2021. If you also spent $100 that year for subscriptions to research websites that made it possible to do your work, you can deduct that $100.
That said, don't guess at those deductions. Instead, look through your credit card statements and receipts to make sure the amounts you're claiming are accurate. If the IRS decides to audit your return and questions your deductions, you'll need proof of the amounts you claimed.
Having a side hustle has its benefits, but it can make filing taxes a touch more complicated. Keep these points in mind as you tackle your upcoming return, and if you start to feel overwhelmed, consider hiring a tax professional. While doing so will cost more than filing taxes yourself, you might avoid a world of stress and eke out extra deductions you wouldn't have otherwise known about.
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