If you made over $600 from your side hustle this year, you might be wondering how that will affect your taxes. Starting this year, there are new reporting requirements payment providers like PayPal, Upwork, and Square must provide the IRS, so it's essential you know what to expect when you're ready to file your taxes.
What is a side hustle?
A side hustle is a term used to describe any supplemental income you earn outside of your regular job. This could include freelance work, contracting, or running your own business. Depending on your side hustle income source, you may be subject to different taxes and filing requirements.
What tax laws affect my side income?
If you made over $600 from your side hustles this year, here are some things you need to know:
1. Payment providers are now required to report to the IRS anyone they've paid $600 or more to within a year. Previously, they only had to report payments of $20,000 in sales and 200 transactions, but the IRS updated these requirements for 2021 and beyond. If you make a lot of money from your side hustles through payments from companies like PayPal, Upwork, or Etsy, you'll need to report that income on your tax return.
2. Companies like Venmo and Cashapp are required to do the same. So even if you received $600 total over the year as gifts or used the apps to try and skirt income reporting requirements, you'll now have to pay taxes on those.
3. If you're self-employed and make over $600 from your side hustles this year, you may be subject to self-employment taxes. This includes paying social security and Medicare taxes and income tax on your profits. Self-employment taxes typically run around 35% of your Adjusted Gross Income (AGI).
How do I report my side income?
If you made over $600 from your side income this year, you would need to report it on your taxes. You may need to file a Form 1040, Schedule C, or Form 8901. You will also need to include the amount of your income from side income on line 7 of your tax return.
You shouldn't expect to receive any forms from your payment processors for this year's return. However, going forward, you can expect to receive a 1099K form for every company that's paid you more than $600 over a year.
What if I can't pay my self-employed taxes?
If you made over $600 from your side income this year and can't pay your self-employed taxes, there are a few things you can do:
- Try to get an extension. If you can't pay your self-employment taxes by the April 15th deadline, you can try to get an extension. You can find more information on getting an extension on the IRS website.
- Request a payment plan. If you don't want to file for an extension, you may want to consider filing for a payment plan. A payment plan would allow you to make smaller payments each month and eventually pay your taxes off in full. You can find more information on filing for a payment plan on the IRS website.
- Ask the IRS for a hardship exemption.
If none of these options work, you may have to get a loan or consider tax debt consolidation options.
The bottom line
As long as you know what is included in your tax return and how to report your side income, you can make informed decisions about how to invest your tax money.
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Original Source: Credello: Here is What You Should Know About Your Taxes if You Made Over $600 From Your Side Hustle This Year