According to a report last year, there were 44 million Americans who said they had a side hustle. According to CNN Money, “of the 86% who say they earn extra money from a side hustle every month, 36% are making $500 or more.” With more people taking on side hustles for extra cash or to just make ends meet, it is important to know what to expect when tax season comes around for this extra income.
When Do I Need to Report My Income?
Whether you are a freelancer or are contracted to do a certain job, if you earned $600 or more, the person or company that paid you will generally have to send you a Form 1099-MISC according to Turbo Tax. Even if you did not make more than $600, and although the payer isn’t required to send you a Form 1099-MISC, you are still required to report the earnings.
How Much Will I Owe in Taxes?
If you work a full-time job, and your side work earning is minuscule in comparison, then you probably won’t owe a lot of taxes on it since your primary income will most likely be enough to cover any taxes according to CPA Jeff Fosselman.
However, if you do owe taxes on your side income, they will be due by the same date that your tax return must be filed. According to “Do I Have To Pay Taxes on Side Gig Income?,” if you end up owing “more than $1000 in taxes after withholding, you may be required to pay quarterly taxes.” If you are unsure how much you are going to make, try to make an estimate, or have an accountant make a projection for you. If you end up overpaying on your quarterly taxes, you will get a refund. If you underpay, then you will just have to balance it out when taxes become due in April.
Tips for Uber and Lyft Drivers
If you are a driver with Uber or Lyft, don’t expect to receive a W-2. What you should expect to receive is a Form 1099-K which will include any payments you received from riders while you were driving. You may also receive a Form 1099-MISC. This form will keep track of any income that is unrelated to driving, such as money earned for referrals or bonuses according to “Don’t Get Audited! How Your Side Gig Needs to Handle Taxes.”
There are many deductible expenses that come with being an Uber or Lyft driver. In the box titled 1a on your 1099-K, you will notice that the reported amount is larger than what you actually earned. This is because the fees and commissions that Uber and Lyft make are included. You can deduct these fees on the Form 1040, Schedule C, under Profit or Loss from Business. Some other examples of things you can deduct include gas, car maintenance, and car cleaning expenses according to Wise Bread. Make sure that you either keep track of all of your receipts or that you use a single credit or debit card for these transactions. That way you will have detailed evidence of these transactions to justify your claim.