When you earn income from a side hustle, you may need to file taxes. You've probably heard that "you need to report if you earn over a certain amount." This article explains side hustle tax knowledge in an easy-to-understand way for beginners.
Disclaimer
This article is for general informational purposes only and does not constitute individual tax advice. For specific decisions, please consult a tax professional or your local tax authority. Tax laws change and vary by jurisdiction.
What You'll Learn
- Who needs to file and who doesn't
- Understanding income thresholds
- Types of side hustle income and how to report
- What you can deduct as expenses
- How to file online
Who Needs to File Taxes
Not everyone with a side hustle needs to file additional taxes. First, check if you have a filing obligation.
For Employees (W-2 Workers)
| Condition | Federal Tax Filing | State/Local Taxes |
|---|---|---|
| Side income under $600 | May not require reporting | Check local rules |
| Side income $600+ | Required | Required |
| Want to claim deductions | Required (even if under $600) | - |
Important Points About Income Thresholds
- It's "net income" not "gross revenue": Gross revenue minus expenses
- Self-employment tax: If net earnings exceed $400, you may owe self-employment tax
- Multiple side hustles: Combine all side hustle income to determine if you need to file
- 1099 forms: Platforms must send you a 1099 if they paid you $600+ (but you're responsible for reporting all income)
For Freelancers & Self-Employed
If freelancing is your main gig or you've registered as self-employed, you generally need to file taxes regardless of income amount. Filing as self-employed can provide various deduction opportunities.
Types of Side Hustle Income
Side hustle income is classified into different categories depending on its nature. The category affects how you calculate expenses and taxes.
Main Income Categories
W-2 Income
Income from part-time jobs, second jobs with an employer
Characteristics: Taxes usually already withheld. Limited ability to claim additional expenses (employer already handles this).
Self-Employment Income (1099)
Freelance work, gig economy, contract work
Characteristics: Can deduct business expenses, subject to self-employment tax, potential for various deductions
Other Income
Occasional side income (crowdsourcing, affiliate marketing, etc.)
Characteristics: Can deduct related expenses, reported on Schedule C or Schedule 1
Rental Income
Rental property, Airbnb, parking space rentals
Characteristics: Can deduct expenses, reported on Schedule E, special rules may apply
Self-Employment vs. Hobby Income
| Item | Self-Employment | Hobby |
|---|---|---|
| Expense Deductions | Can deduct business expenses | Very limited |
| Losses | May offset other income | Cannot offset |
| Self-Employment Tax | Yes (15.3%) | No |
| Record Keeping | Required | Recommended |
Whether your activity qualifies as a "business" or "hobby" is determined by factors like profit motive, regularity, time invested, and whether you depend on it for income. The IRS looks at whether you're pursuing the activity to make a profit.
What You Can Deduct as Expenses
Expenses related to your side hustle can be deducted from your income. However, you need to separate personal expenses from business expenses.
Common Expense Categories
Communication
- Internet (business portion)
- Phone (business portion)
- Domain/hosting costs
Supplies & Equipment
- Computer (under $2,500 or depreciated)
- Peripherals, office supplies
- Software subscriptions
Education
- Books, courses
- Online learning
- Conference/seminar fees
Fees & Services
- Platform fees (Upwork, Fiverr, etc.)
- Payment processing fees
- Bank/transfer fees
Home Office
- Rent (dedicated workspace portion)
- Coworking space
- Utilities (business portion)
Travel
- Client meeting transportation
- Business travel
- Mileage for business use
About Partial Deductions
For items used for both personal and business purposes, you can only deduct the business-use portion.
Partial Deduction Examples
Required Documents for Filing
Basic Requirements
W-2 from Your Employer
Shows your wages and taxes withheld from your main job.
1099 Forms for Side Income
1099-NEC, 1099-K from platforms, payment records, income tracking.
Expense Receipts & Records
Receipts for expenses you're deducting. Digital records are acceptable.
Social Security Number or ITIN
Required for filing and identification.
Additional Documents for Deductions
| Deduction Type | Documents Needed |
|---|---|
| Medical Expenses | Medical bills, receipts, statements |
| Charitable Donations | Donation receipts, acknowledgment letters |
| Mortgage Interest | Form 1098 |
| Student Loan Interest | Form 1098-E |
Online Tax Filing Steps
You can complete your tax filing from home using online tax software. Here's the general process.
Filing Process
Gather Documents
Collect all W-2s, 1099s, expense receipts, and previous year's return
Choose Tax Software
Popular options: TurboTax, H&R Block, TaxAct, FreeTaxUSA
Enter Income
Input W-2 wages and all side hustle income (1099s and other)
Enter Expenses & Deductions
Business expenses, home office deduction, other eligible deductions
Review & Submit
Review calculated taxes, e-sign, and submit electronically
Pay or Receive Refund
Pay any taxes owed or wait for refund deposit
Key Deadlines
Tax Filing Deadline
Typically April 15 (may vary)
April 15
Federal deadline
*You can file an extension until October, but payment is still due by April 15. Late payments may incur penalties and interest.
Quarterly Estimated Taxes
If you expect to owe $1,000 or more in taxes, you may need to pay quarterly estimated taxes to avoid penalties.
Estimated Tax Deadlines
Q1 (Jan-Mar)
Due April 15
Q2 (Apr-May)
Due June 15
Q3 (Jun-Aug)
Due September 15
Q4 (Sep-Dec)
Due January 15 (next year)
Tax Software Comparison
Popular Options
| Software | Price | Features | Best For |
|---|---|---|---|
| TurboTax | $0-200+ | Easy to use, guidance | Beginners |
| H&R Block | $0-150+ | In-person support option | Those who want help |
| TaxAct | $0-100+ | Good value | Budget-conscious |
| FreeTaxUSA | Free (federal) | Simple and free | Simple returns |
Bookkeeping Tips
Track Regularly
Record expenses as they occur rather than waiting until year-end. Makes tax time much easier.
Separate Bank Accounts
Having a dedicated account for side hustle income and expenses makes tracking much easier.
Digital Receipt Storage
Take photos of receipts and store digitally. Apps like Expensify can help organize.
Frequently Asked Questions
Q: Should I file even if my side income is small?
A: If you had taxes withheld from any income, filing may result in a refund. Also, establishing a history of reporting can be beneficial for future business purposes.
Q: What type of income is freelance platform work?
A: Generally reported as self-employment income on Schedule C. If it's ongoing and profit-motivated, it's treated as a business.
Q: What if I don't have receipts for expenses?
A: Documentation is generally required for deductions. Bank/credit card statements may be acceptable in some cases. Keep records going forward.
Q: What happens if I don't file?
A: Failure to file when required can result in penalties (typically 5% per month of unpaid taxes) and interest. In serious cases, additional penalties may apply.