In recent years, more and more people are turning to side hustles for additional income source. Side hustle refers to any work taken on outside of one’s full-time job. This could be anything from freelancing to portrait painting. However, along with extra income, come extra responsibilities, particularly regarding taxes. Understanding your tax obligations for a side hustle is paramount to avoid any surprises come tax season. So, how much can you earn from your side hustle, and when do you have to start paying taxes on side hustle income?
Firstly, it is crucial to understand that the Internal Revenue Service (IRS) stipulates that any form of income, whether from a full-time job, a part-time job, or even a side hustle, is taxable. Your side hustle tax boils down to the total income you earn in a tax year, and the degree to which these side hustle taxes impact your total tax return. It is, therefore, necessary to understand how to report side hustle income correctly.
Whether your side hustle is delivering groceries, designing websites, or offering home tutoring services, if you earn more than $600 from your side hustle in any given year, the person or company that pays you is required to provide you with a 1099-MISC or 1099-NEC form. This is commonly known as a 1099 side hustle, and the IRS also receives a copy.
However, the responsibility of reporting your extra income doesn’t start at $600. Every dollar earned from your side hustle should be reported on your tax return. It is essential to remember that if you are making money from your side hustle, the IRS considers you a small business owner, even if you don’t officially own a business.
Given this context, the tax side hustle becomes essential. The tax is calculated based on the net income, which is the income earned after deducting all the expenses related to your side hustle. Therefore, maximizing your side hustle tax deductions can significantly impact your overall tax liability.
Deductions are expenses that you can subtract from your taxable income. As a side hustler, many of the costs you incur in the process of running your gigs are deductible. These may include expenses for using part of your home as an office, supplies, travel expenses, and even some startup costs. Keep in mind, though, the expenses must be both ‘ordinary’ and ‘necessary,’ as defined by the IRS.
As always, it’s essential to keep detailed records of your side hustle income and expenses. This will be crucial when it’s time for paying taxes on your side hustle. A simple spreadsheet noting your income and expenditure can go a long way in ensuring you are organized and prepared for tax season.
So now, how much can you make on the side without paying taxes? Sadly, there isn’t a precise limit. As a rule, you’ll have to start paying taxes as soon as you earn more than your standard deduction. For the tax year 2021, the IRS has set the standard deduction at $12,550 for single filers and $25,100 for those married filing jointly. Note, though, that different rules can apply if you have multiple sources of income.
To conclude, navigating the waters of taxes for your side hustle can indeed be complicated. When and how much you pay for side hustle tax depends on several factors, including your total annual income and the nature of your side hustle. Nevertheless, with a basic understanding of side hustle taxes and continued learning, you can effectively manage your side hustle tax.
Remember to report all your side hustle income honestly, make the most of your deductible expenses, and when in doubt, consult a tax professional. By knowing how side hustle and taxes work hand in hand, you can enjoy your extra earnings while staying within the confinements of the law.
And remember, taxes don’t have to be a deterrent to pursuing a side hustle. Approach them with the same enthusiasm as the side hustle itself, and you’ll excel at both.