Start a side concert in 2022? Whether you lost your traditional job or just wanted to earn some extra money, side jobs tend to make filing a little more complicated.
Over the years, the IRS has refined its rules for temporary workers. But obviously, the IRS still wants you to pay taxes on any income, whether it’s your main source of income or earnings earned from your side job.
Whether you drive for a ride-sharing service, deliver food, or run a virtual business, you must report your additional new income on your tax return. But before you start, it’s important to understand all the possible implications so you don’t get a surprise tax bill or tax penalty when it’s time to file taxes.
The IRS definition of gig work
With the rise of the gig economy, the IRS worked to clearly define what constitutes a “gig.” According to the IRS, the gig economy—also called the sharing economy or the access economy—is an activity in which people earn income by providing work, services, or goods on demand. Often, it is through a digital platform such as an app or a website.
The income from the side concert must be reported on your tax return, even if you earned cash from the concert or received no formal income statement.
Common examples of temporary jobs include, but are not limited to:
- Drive for a rideshare app
- Grocery or food delivery through an app
- Selling Items Online
- Work as a freelancer or contractor
- Provide professional or creative services.
- Rent a property
- Sale of crafts or other handmade products.
Again, these are just a few examples. Regardless of how you earned the money, you are responsible for reporting it to the IRS.
Understanding the tax implications of your secondary concert
So, it’s your first year of parallel work. What does that mean when it comes time to file your own taxes?
No matter how much you earned, you must report that income as self-employed. And if you also have a full-time job in addition to your side job, both forms of income must be reported on your tax return.
That’s assuming you’re operating your side gig as a sole proprietor or single-member LLC. If that is the case, then you must report your additional income on your individual 1040 tax return.
By filing this way, you are personally responsible for paying any taxes owed out of your own pocket. That’s why it’s vital to keep accurate records of your income and secondary expenses throughout the year. Be sure to keep all documentation, even after filing your taxes, in case you ever get audited.
If your side gig earnings are only a small amount and you had no expenses related to the work you did, it will be relatively easy to report your earnings. But if you were profitable and had high business expenses, it gets a little more complex. You can even take the qualified business income deduction on your personal tax return. DIY tax software, like TaxAct, will calculate that deduction to help you claim the benefit accurately.
All about paying quarterly taxes
In your first year of having a side job, you may not know about quarterly tax payments. Any independent contractor or self-employed person must pay quarterly estimated taxes on the income he earns during the year.
Why? Well, consider a traditional full-time job. Federal income taxes are automatically deducted from each paycheck so you can stay current on your tax liability throughout the year. The entire US tax system is designed to be pay as you go. However, with income from secondary concerts, taxes are not automatically deducted. As a result, the IRS requires temporary workers to pay estimated taxes each quarter in order to pay their fair share by the end of the year. Quarterly tax payments are due on the following dates for 2023:
- April 18th for the payment period from January 1 to March 31, 2023
- June, 15 for payment period from April to May 31, 2023
- September 15 for the payment period from June to August 31, 2023
- January 15 for the payment period from September 1 to December 31, 2024
How to File Taxes for a New Side Gig
Regardless of whether you paid quarterly taxes when tax season rolls around, there are a few things you need to prepare before filing your return.
Track your income
First things first: track your side gig revenue throughout the year.
If you worked a side gig through an app, it should be relatively easy to keep track of your income. The app usually tells you how much you were paid throughout the year. On the other hand, if your side gig didn’t use an app, you’ll need to track it down on your own. You can do this by reviewing the invoices you sent or simply by reviewing your bank statements.
Track your expenses
Once you’ve tracked your income, you can track the expenses related to your side gig. Tracking and reporting expenses that are considered “ordinary and necessary” in the course of business can qualify you for tax deductions and reduce your overall tax liability. Typical expenses can include things like mileage, office expenses, equipment needs, and client meals.
Pick up your forms
Then, keep track of any tax forms you received from working your side job, such as Form 1099-K, Form 1099-MISC, Form 1099-NEC, or any other income statement. If you earned at least $600 as a self-employed worker, you should receive a 1099 form from the company that paid you. However, even if you do not receive an income statement for the work you completed, you are still responsible for reporting and paying taxes on that income. Make sure all the forms you receive match your own records.
file your taxes
Even if you filed your taxes on your own in the past, your tax situation has become even more complicated now that you have to report your side concert information. Verify Self Employed Tax Act to help you accurately report your self-employment income and deductions. Our Deduction Maximizer This feature will help you keep more of your self-employment income by identifying the deductions most commonly claimed by other taxpayers like you.
Get ready for your second year of activity
It’s never too early to plan ahead for next year! Once you file your taxes, there are a few things you should consider doing to make next year even easier.
First, consider opening a separate business checking and savings account for your extra work. That way, it’s easy to keep track of your business income and expenses and keep them separate from your personal money. Plus, that also makes it easier to set aside money for quarterly tax payments.
Then check the quarterly tax deadlines on your calendar! If you use TaxAct to file your returnYou can set up automatic quarterly tax payments to make sure you never miss a deadline.
Lastly, create a system to better track business expenses throughout the year. There are many applications to help you organize your annual expenses. Research and implement a new system – your future self will thank you!
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