Why You Need to Pay Taxes on Your Side Hustle

Photo by rawpixel.com on Unsplash

I live in LA, the land of the side hustle … the barista/film director, Uber driver/DJ, blogger/nurse, actor/waiter, etc. That extra income is quite alluring – it may even seem free – but nothing in life is free.

General rule, if your accountant tells you that you don’t need to report any type of  income – then you need to get another accountant. All income is reportable, even hobby income and side hustles.  Hell, even income from illegal activity is taxable (ask Al Capone).

There are a lot of tax rules and laws that determine what kind of expenses can be applied, but the income itself is always reportable.

For instance:

  1. There are special rules for activity that the IRS would say is a hobby which means you can take legitimate expenses to the extent of the income but can not claim a loss.
  2. There is income that is in the pursuit of profit which you can take losses from but which are more scrutinized.
  3. There is income you receive that is not in pursuit of a profit and is only a one time thing (like being a trustee for your parents estate) that should have no expenses but that will pay income taxes and no Self-Employment tax.

The general rule of thumb is based on IRC Section 61 – All income is reportable and the penalties can be enormous or at least exasperating if you withhold reporting income.  Expenses are generally arguable for the most part as it depends on your perspective.  If the IRS sees you haven’t claimed income that is their first indication that there may be some degree of fraud (no matter how small) and you can get pulled into a full blown audit due to it.

There is a common myth that if you don’t get a 1099 for it then you don’t have to report it!  False, the 1099 standards are created for the benefit of the issuers.  If you make ANYTHING you need to claim it whether you received a 1099 or not.

The rules are fairly tricky so a LOT of people simply don’t report all of their side income.  I can promise you this, if you get caught the penalties can make the omission so not worth the taxes you think you saved. As always, each individual situation is different so make sure you consult with a tax professional to save yourself some serious headache down the road.

We’ll chat soon!


1 thought on “Why You Need to Pay Taxes on Your Side Hustle

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this:
search previous next tag category expand menu location phone mail time cart zoom edit close