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How to File Taxes for a New Side Gig

Gig Workers Self-Employed Taxes Self-Employment Tax Planning Self-Employment Tax Tips
An adult woman taking online crochet lesson and making crochet bag as a side gig

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Updated for tax year 2023.

Did you start a side gig in 2023? Whether you lost your traditional job or you simply wanted to earn some extra cash, side gigs tend to complicate your tax filing a bit.

The IRS has refined its rules for gig workers over the years. But obviously, the IRS still wants you to pay taxes on any income, whether it is your primary income source or profits earned from your side hustle.

Whether you drive for a ride-sharing service, deliver groceries, or run a virtual business, you need to report your new side hustle income on your tax return. But before getting started, it’s essential to understand all the possible side gig work tax implications so you aren’t hit with a surprise tax bill or tax penalty come tax time.

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 access economy — is an activity where people earn income by providing on-demand work, services, or goods. Often, it’s through a digital platform like an app or website.

Side gig income must be reported on your tax return, even if you earned cash for the gig or didn’t receive any formal income statement.

Common examples of gig work include but aren’t limited to:

Again, these are just a few examples. Regardless of how you earned the money, you are responsible for reporting it to the IRS.

Understanding your side gig tax implications

So, it’s your first year of working a side gig. What does that mean when it comes time to file your own taxes?

No matter how much you earn, you must report that income as a self-employed individual. And if you also have a full-time job on top of your side gig, both forms of income need to be reported on your tax return, assuming you are operating your side gig as a sole proprietor or single-member LLC.  If that’s the case, then you need to report your side income on your individual 1040 tax return.

By filing this way, you are personally liable to pay any taxes owed out of your own pocket. Because of that, it is vital to keep accurate records of your side income and expenses throughout the year. Be sure to keep any documentation even after you file your taxes in case you are ever audited.

If your side gig earnings are only a small amount and you have no expenses related to your work, it will be relatively easy to report your earnings.  But it becomes slightly more complex if you are profitable and have high business expenses. You may even be able to take the qualified business income deduction on your personal tax return. DIY tax software, like TaxAct®, will calculate that deduction for you to help you accurately claim the benefit.

All about quarterly tax payments

In your first year of having a side gig, you may need to learn about quarterly tax payments. Any independent contractor or side gig worker must pay quarterly estimated taxes on the income they earn throughout the year.

Why? Well, consider a traditional full-time job. Federal income taxes are automatically taken out of each paycheck so you can keep up with your tax liability all year long. The entire U.S. tax system is designed to be pay-as-you-go. With side gig income, however, no taxes are automatically taken out. As a result, the IRS requires side gig workers to pay estimated taxes every quarter to pay their fair share before the end of the year. Quarterly tax payments are due on the following dates for 2023 and 2024:

Due Date Payment Period Quarterly Payment
Jan. 16, 2024 Sept. 1 to Dec. 31 2023 Q4
April 15, 2024 Jan. 1 to March 31 2024 Q1
June 17, 2024 April 1 to May 31 2024 Q2
Sept. 16, 2024 June 1 to Aug. 31 2024 Q3
Jan. 15, 2025 Sept. 1 to Dec. 31 2024 Q4

How to file taxes for a new side gig

Regardless of whether you paid quarterly taxes when tax season rolls around, there are some things you need to prepare before you file.

1.    Track your income

First things first: Track your side gig income throughout the year.

If you worked a side gig through an app, tracking your income should be relatively easy. The app typically tells you how much they paid you throughout the year. On the other hand, if your side gig didn’t use an app, you will need to track it on your own. You can do that by checking any invoices you sent or reviewing your bank statements.

2.    Track your expenses

Once you’ve tracked your income, you can track any expenses related to your side gig. Tracking and reporting expenses considered “ordinary and necessary” in the course of business may qualify you for tax deductions and lower your overall tax liability. Typical expenses may include things like mileage, office expenses, equipment needs, etc.

3.    Collect your forms

Next, keep track of any tax forms you received for working your side gig, such as Form 1099-K, Form 1099-MISC, Form 1099-NEC, or any other income statement. If you earned at least $600 as an independent contractor, you should receive a 1099-NEC form from the business that paid you. However, even if you don’t receive an income statement for the work you completed, you are still responsible for reporting and paying taxes on that income. It’s also good to make sure any forms you receive match your own records.

4.    File your taxes

Even if you filed your taxes on your own in the past, your tax situation may have gotten more complicated now that you have to report your side gig information. Check out TaxAct Self-Employed to help you accurately file your self-employment income and deductions.

Prepare for your second year of business

It’s never too early to plan for next year. Once you file your tax return, there are some things you should consider doing to make next year even easier.

First, consider opening a separate business checking and savings account for your side gig if you haven’t already. That way, it’s easy to track 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.

Next, mark the quarterly tax deadlines on your calendar! If you use TaxAct to file your return, you can set up automatic quarterly tax payments to ensure you never miss a deadline.

Lastly, create a system to better track business expenses throughout the year. There are plenty of apps to help you organize your annual expenses. Do your research and implement a new system — your future self will thank you!

This article is for informational purposes only and not legal or financial advice.
All TaxAct offers, products and services are subject to applicable terms and conditions.

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