It’s tax season, ladies! And for those of you who’ve taken up side jobs to supplement your income, you should be filing taxes on the money that you’ve made.
According to the Internal Revenue Service (IRS), there’s no minimum amount from a side job that a taxpayer should exclude from their tax filing, all income should be reported. And it’s not smart to avoid Uncle Sam in situations regarding tax. Underestimation of income can lead to an IRS audit or tax penalties.
Here we’ll share with you ways to find out what you made, how to report it and the deductions you may qualify for when you file.
Your taxable income
If you’ve worked as an independent contractor or freelancer for side income, you may receive Tax Form 1099 in the mail. This form is like a self-employed person’s W-2 with details on your earnings. It’s sent by companies to freelance workers who they’ve paid $600 or more throughout the year. However, if you don’t receive a 1099 from a company that you’ve worked for you’re still required to report your income.
Additionally, if you make money online selling a product or service through e-commerce sites like PayPal this income needs to be reported. PayPal doesn’t send out a 1099 unless you make more than $20,000 or receive over 200 payments. Nonetheless, it’s in your best interest to honestly report all income earned online to avoid future tax obligations.
Depending on your side hustle, your earnings may not be tallied and sent to you by a company or neatly organized on PayPal. So, it’s important to keep detailed records throughout the year. Although it’s a tedious process, you may have to look back through your bank statements in 2014 to calculate your side earnings. Avoid considering any money you’ve received as “under the table.” You’re always playing a game of chance when earning income without reporting it to the IRS.
Filing your taxes
According to the IRS, all side income earned is self-employment income and should be reported on Form 1040. If you file taxes using online systems like TurboTax there’s a section within you filing for miscellaneous income that you’ve made from side work. If you prefer to have someone file your taxes for you, you can try locating a professional at H&R Block or looking for a tax preparer on the IRS Directory of Federal Tax Return Preparers.
Deductions for your hustle
There are many miscellaneous deductions you may qualify for and ultimately the decision on filing any of them should be made with a qualified tax professional. The IRS states some areas of deductions for side income include tools and supplies for your work, work-related education, dues to professional societies or subscriptions to professional trade journals.
Preparing for taxes in 2016
You’ll likely feel overwhelmed if this is the first time you’re preparing taxes for a side hustle. Don’t worry, it just takes practice. The best way to prepare for 2016 is by keeping detailed records of your income and expenses starting today.
Create an Excel spreadsheet for yourself to keep tabs on what you’ve earned and update it at the end of each month. Organize and store all of your receipts so you remember your expenses. Although you want to take responsibility for the taxes that you owe, you never want to miss out on an opportunity to save money because you’re missing paperwork.