When tax season rolls around, it can get really stressful for those of us that have multiple forms of income, and especially for those of us with side hustles. It’s not like we’re making a ton of money — in fact we often have multiple forms of income because we can’t make ends meet with just one. Unfortunately, making money usually means you have to pay taxes, even if your income isn’t from it isn’t a particularly large amount.
It may not be as bad as you think, though. You may be asking yourself, “do I have to file taxes if I only made a small amount of money?” or “what can I write off?” You may not even know what kind of tax form you need! Here are some tips on doing your taxes for your side hustle next time the season is among us, and hopefully some of those questions will be answered …
The “Under $400 Rule”
If you didn’t make $400 or over with your side hustle, then in general you do not have to report it. Of course, there are certain exceptions to this rule, and you read about those in the introduction of Form 1040.
So if your side hustle is small or your freelance work is very occasional, take heart! You may have made it unscathed by the IRS. However, a lot of people make more than $400 off of their side gig, and that unfortunately means that the sandman (er, taxman) is coming for you.
How Much Is Too Much?
Some freelance gigs do not pay much, and if it’s a hobby-based project, you may find yourself in the unfortunate position of not breaking even on the costs for a long while. However, if you make more than $400 a year, you must file taxes.
Each individual freelance job you do determines how or if you are doing taxes for it. Rule of thumb says that if you earned over $600 on an individual gig, the person who paid you for the service needs to send you a 1099 form. This, by the way, is sent differently than an invoice for the work you’ve done. If you had income but never got $600 from an individual project, you don’t need the 1099. However you do need to report that income still if you grossed over $400 for the year.
Knowing what you can write off and what you can’t means dictating between business expenses and personal expenses. Business interest — for instance that which has been spent on a credit card — can be written off, but there are rules to it. For instance, if you work from your couch on home, you don’t get to write that off. If you have a home office, though, that you do the bulk of your work out of, you may be able to deduct on the interest of that per square foot.
What you need to keep in mind is that deductions for a small business are the benefit of keeping thorough and precise records. Gas and other travel expenses, as well as any other materials you buy for an office that are used in the business, may be able to be written off. Car maintenance, depreciation, and machinery and equipment rental are all potential write offs too. So stay aware, double check with tax experts or on official tax and accounting websites, and write off.
What write offs do you take for your side hustle? What kind of side hustle do you do? We’d love to hear more. Let us know in the comments below!