MYTH :
You Don’t Have to Report Income from Side Gigs
REALITY :
Income from side gigs, no matter how small, must be reported.
HOW WE KNOW :
IRS rules specify that all income must be reported.
KEY TAKEAWAYS :
All Income is Taxable: Income from side gigs must be reported to the IRS, regardless of the amount.
Self-Employment Tax: Side gig income is subject to self-employment tax in addition to regular income tax.
Stay Informed: Understanding the requirements for reporting side gig income is crucial to stay compliant with IRS regulations.
One pervasive tax myth is the belief that you don’t have to report income from side gigs. This misconception can lead to serious compliance issues with the IRS. Here's what you need to know to stay compliant and avoid these pitfalls.
Origin of the Myth
Casual Income Misconception: Many people assume that casual or infrequent side gig income doesn’t need to be reported.
Lack of Awareness: There is often a lack of understanding about the tax obligations associated with all forms of income.
Reality of Reporting Side Gig Income
All Income is Taxable: The IRS requires that all income, including income from side gigs, be reported and taxed.
Form 1040: Side gig income must be reported on Form 1040, typically using Schedule C (Profit or Loss from Business) or Schedule SE (Self-Employment Tax) if applicable.
IRS Guidelines on Side Gig Income
Worldwide Income: The IRS requires all U.S. taxpayers to report their worldwide income, including any income earned from side gigs.
Self-Employment Tax: In addition to regular income tax, side gig income is subject to self-employment tax, which covers Social Security and Medicare taxes.
Why the Myth Persists
Informal Nature of Side Gigs: The informal and often irregular nature of side gigs can create confusion about tax obligations.
Misinformation: Inaccurate advice from non-professional sources perpetuates this myth.
Avoiding the Pitfall
Understand Your Obligations: Clearly understand that all side gig income must be reported.
Report All Income: Ensure all side gig income is included on your U.S. tax return.
Pay Self-Employment Tax: Calculate and pay self-employment tax on side gig income.
What You Can Deduct
Business Expenses: Deduct ordinary and necessary expenses related to your side gig, such as supplies, equipment, and business-related travel.
Home Office Deduction: If you use a portion of your home exclusively for your side gig, you may qualify for a home office deduction.
Consulting a Tax Professional
Seek Professional Advice: Consulting a tax professional can help ensure you meet all reporting requirements and accurately calculate your taxable income.
Accurate Records: A professional can assist in maintaining proper records and navigating the complexities of reporting side gig income.
