In today’s gig economy, many of us have embraced side hustles to boost our income. Whether you’re selling handmade crafts online, freelancing, or offering services through various platforms, it’s essential to understand that the IRS is paying close attention to these additional earnings. Let’s delve into what this means for you.
Do I need to report my side hustle income to the IRS?
Absolutely, every amount you will generate from your side hustle is subject to tax and must therefore be reported on your return. This is income earned from the sale of goods, services, or any other form of compensation. Even if your side gig may feel more like a hobby, the IRS requires you to report the income.
Read more: IRS to send refunds soon: how to check the status of your tax refund
What is Form 1099-K and why might I receive it?
Form 1099-K is used to report payments received from third-party settlement organizations, such as online marketplaces or payment apps. If you have earned more than $5,000 in 2024 through platforms like Etsy, eBay, Venmo, or CashApp, you should expect to receive this form by January 31, 2025. This form details your earnings and is also sent to the IRS, so they are aware of your income.
How have reporting thresholds changed for online sales?
In the past, platforms were only required to issue a 1099-K if a seller had over 200 transactions totaling more than $20,000. However, the IRS has been lowering this threshold to capture more income. For 2024, the threshold is $5,000, decreasing to $2,500 in 2025, and will drop to $600 in 2026. This means more side hustlers will receive 1099-K forms in the coming years.
What if I don’t receive a 1099-K? Do I still need to report my income?
Yes, you do. Even if you don’t receive a 1099-K, you are still legally obligated to report all income from your side hustle. The IRS expects you to keep accurate records of your earnings and report them on your tax return. Failing to do so can lead to penalties and interest on any unpaid taxes.
Are there deductions I can claim for my side hustle?
You may deduct the expenses that are necessary for your side business. The list might include things such as supplies, advertising, and part of your utilities bill for the home office or workshop you are using exclusively. Keep very detailed records, because these expenses can help you save on taxes.
How can I ensure I’m compliant with IRS regulations?
Here are a few suggestions that can help you stay compliant:
- Keep good records: Keep good records of all your income and expenses related to the side hustle.
- Report all of your income: That means even a few dollars, and even if you didn’t receive a 1099-K, report it.
- Professional tax advice: In case you are not sure about some things, advice from a qualified tax professional will be very helpful in your tax concerns and will keep you away from any potential danger.
