The gig economy has exploded in recent years as workers from all walks of life take up a side hustle. In the US, almost a third of paid workers have a side hustle in addition to their main job.
They’re a great way to supplement your income, but you shouldn’t forget that the IRS wants their slice of the pie. The money you make on your side hustle may be taxable income, and if you don’t declare it, you could be in for an unpleasant surprise when the IRS catches on.
Our latest infographic reveals what you need to know about tax and the gig economy. Learn what you should declare, what will happen if you don’t declare your side hustle income, and — the best part — what you could save with side-hustle deductions.
Any good financial advisor will tell you that having more than one income stream is a good idea. Whether you’re earning to save or to spend, making a few extra dollars in your downtime can make a difference to your lifestyle.
Unfortunately, 33% of millennials aren’t giving the IRS its due, often because they’re unfamiliar with the tax rules for independent contractors, which is how side hustles like ride-sharing are categorized.
If you make money as an independent contractor, the IRS wants to know about it even if it’s just pocket money. It all counts and should be included in your income tax returns. Independent contractors should fill in a 1099 form to declare all the income earned on a side hustle.
Keep accurate records
If you want a smooth ride when tax season comes around, record everything you earn, as you earn it. You don’t want to have to spend hours sifting through receipts, invoices, and expenses as the deadline looms. There are many apps to help you track your side hustle income and expenses. Quickbooks Self-Employed and Hurdlr are among the best.
Don’t forget about deductions
Many of your side-hustle expenses are deductible. Track your business expenses throughout the year and declare them.
Tracked expenses can make a significant dent in your tax liability, so it’s vital that you keep good records. For ride-sharers, mileage is the big one, but you can also deduct other vehicle-related expenses, including insurance, depreciation, and maintenance. Other business expenses are deductible too, including tolls, health insurance, and parking fees.
Declaring your side-hustle earnings is an important part of running a business, however large or small it might be. The consequences of not declaring can be serious, with penalties that could wipe out a big chunk of your total income.