Earning extra income with a side hustle could affect your tax refund.
Here are five things Americans with additional income should know.
FAFSA 2022 explained
1.Additional income is taxable
Regardless of the nature of the work, additional income is taxable. Find more information on it here.
Earning extra money outside of your full-time job often feels unimportant. However, all additional income is taxable.
If your side hustle makes at least $400, then it needs to be reported to the IRS.
There could be serious consequences if you fail to report. That includes the IRS failure-to-file penalty. That penalty is a charge from the government based on the income that wasn’t reported.
2.Side hustle income is probably self-employment income
The additional income is most likely considered self-employment income. This would put you in the same tax bracket has a sole proprietor with 100 employees.
If your side hustle is a solo project, you’ll be considered both employer and employee.
This means that you are responsible of both halves of Social Security and Medicare taxes. The taxes amount to 15.3%, but you can make deductions to offset the tax.
3.You can deduct expenses
Almost any expense used to maintain your side hustle can be reported to the IRS for a potential deduction.
Proving you actually spent the money on maintaining your side hustle is important.
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4.Keep all receipts
As mentioned above, proving your expenses is important. Keeping all of your receipts leaves a paper trail for expense tracking.
This includes office supplies, phone bills, insurance payments, or even a portion of rent if you work at home.
Speaking to a tax advisor may be helpful to help you determine which expenses can be reported.
5.Fill out tax forms
Most people file a W-2. However, reporting side earnings is different. Form 1040 is required for people with multiple streams of income.
You’ll also need to file a Schedule C and Form SE to report self-employment taxes.
However, the forms vary depending on your circumstances. A tax professional could assist you with reporting and filing.
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