Over 55 million people are engaged in side hustles. Commonly known as the gig economy in today’s vernacular, people are turning to work they can do on their own terms to earn extra cash in addition to their regular jobs. Side hustles run the gamut from making handcrafts and freelance writing to dog walking and driving for ride-share companies.
The activities can generate significant funds to help people get out of debt, finance college, or save for retirement. It allows individuals to follow their passion, provides a measure of financial freedom, and allows for extreme flexibility on the part of the individual. What most people don’t realize is that they’ll also be responsible for paying taxes on their side hustle.
However, the IRS has an entirely different set of rules for people in the gig economy. If an individual makes more than $600 in a calendar year, they’ll have to report the money as earnings on their tax returns. The IRS then classifies individuals as self-employed and subject to a 15.3 percent self-employment tax.
To offset that, individuals will need to take every deduction possible and make sure they have enough money in savings to pay the taxes the IRS will impose. Failing to plan ahead will leave side hustlers with a large tax bill they may be ill-equipped to pay, which can set an entirely new set of problems in motion.
The first thing that side hustlers learn is to save every receipt. Individuals working from home can claim a portion of their home as office space. Expenses for driving to trade shows, assignments, and even internet services can be deducted, along with laptops, software and similar expenses for conducting the side job.
Performing work for others via online platforms is one of the most popular ways that people are engaging in side hustles. It’s important to know that these gig platforms typically don’t issue a form 1099 for taxes at all, and some only do if a certain income level is reached. Individuals will need to learn how to keep accurate records of expenses and income on their own.
At Peavy and Associates PC our mission is to assist you with all your tax preparations, payroll and accounting needs. We provide our clients with professional, personalized accounting services and guidance in a wide range of financial and business needs. Give us a call today and discover why our clients return to Peavy and Associates, PC year after year!