When do Side Gigs Need to Be Reported on Your Taxes?

Many individuals engage in side gigs or part-time income sources to supplement their primary earnings. But the age-old question remains: how much income from a side hustle is needed to report it on your tax returns?

Understanding the Basics

It's important to distinguish between regular employment income and self-employment income. Self-employment income includes earnings from side gigs, freelance work, or any other independent work you do alongside your regular job. The amount of income from these sources can significantly impact your tax obligations.

Likelihood of Reporting

Even if your side gig income is minimal, it should still be reported on your tax return. According to IRS guidelines, if your total self-employment income exceeds $400 in a year, you must file a Schedule C and a Self-Employment Tax (SE) schedule with your tax return. This requirement applies even if your total income is below the usual filing threshold.

Income Thresholds for Filing

For single taxpayers, the filing threshold is $12,400 for the 2023 tax year, while for married couples filing jointly, the threshold is $24,800. However, if your side gig income, no matter how small, pushes your total income over these figures, you still need to file a return.

Additional Reporting Requirements

It's also crucial to report any income that exceeds $1.00 from any job, even if it's not considered self-employment. This ensures that your Social Security benefits are correctly calculated. Additionally, if you earn more than $400 from gig work, you must file a tax return, regardless of your total income.

When Less than $0.50 Matters

While not every instance requires reporting, it's worth noting that if your side gig income is less than $0.50, it is typically rounded down, and therefore not counted. However, if your total income, including the side gig, is below the filing threshold, then no reporting is required. But as of 2023, the $400 rule supersedes the previous rounding rule, making it necessary to report any small earnings that contribute to this threshold.

Reporting Untraceable Income

For income that is untraceable, such as cash payments for a few hours of work, the decision to report it is up to you. While you may choose not to report it, it's essential to be aware that the IRS can still trace it if you are audited. Reporting all income accurately is crucial for avoiding penalties and audits.

Consequences of Non-Reporting

Failing to report your income can have significant consequences. The IRS has the power to prosecute individuals for submitting fraudulent tax returns. Those found guilty can face severe penalties, including imprisonment and fines. It's important to be honest and report all income to avoid these potential issues.

Conclusion

In summary, whether your side gig income is $0.50 or more, it should be reported on your tax return. Adhering to these guidelines ensures that you avoid penalties, maintains your tax records, and protects your financial interests. Always be prepared to report any earnings that bring your total income over the $400 threshold.