How to File Your Taxes with Side Income

Updated for tax year 2023.

Did you earn income from a side gig during the tax year? Whether you’re driving for a rideshare service, freelancing in your spare time, or selling handmade crafts online, earning a side income can be an entrepreneurial leap into the gig economy. However, with the extra income comes the responsibility of reporting it correctly on your tax return. In this guide, we’ll walk you through the essential steps to ensure you file your taxes accurately and efficiently, specifically if you are a gig worker with a side hustle.

At a glance:

• If you have side income, make sure you have all the necessary tax forms before you start filing, including Form 1099-NEC or Form 1099-K.
• Keep meticulous records of your business expenses during the year so you have them handy at tax time.
• Use tax filing software like TaxAct® Self-Employed to file your taxes with ease.

1. Get your income tax forms together.

When it comes to filing your taxes with side income, the first and most important step is to gather all the necessary income tax forms. This includes Form W-2 if you have a regular job, as well as Form 1099-NEC or Form 1099-K if you earned income from being self-employed (like freelancing or gig work). You’ll report 1099 income on Schedule C. Keep in mind that even if you didn’t receive a tax form or were paid in cash, you still need to report all your income. The IRS requires that all income, whether it’s from a regular job or freelance work, be reported on your tax return, so it’s essential to keep track of it no matter how small.

If you’re both an employee and a freelancer, you’ll likely receive a mix of the previously mentioned forms. If it sounds overwhelming to keep track of all the different forms and to know which tax deductions and tax credits apply to your situation, don’t stress. Fortunately, TaxAct® Self-Employed is a tax filing software that can help you file your own taxes accurately and efficiently. Our product guides you through each step of the process, making sure you don’t miss any important tax deductions or credits.

2. Download other documents relating to income, deductions, and insurance.

It’s crucial to keep track of all your financial documents, especially during tax season. In addition to your income forms, there are other important documents that you shouldn’t forget about. These include the Form 1099-INT from your bank or other financial institution if you earned more than $10 in interest, as well as the Form 1099-DIV for any dividends or capital gains you had during the year.

To ensure that you have all the necessary paperwork, it’s best to log in to all your financial providers’ websites and download any year-end forms that may be available. If you’ve opted for paperless communication, you’ll need to be particularly vigilant in checking your account portals for these forms.

By taking the time to gather all the relevant financial documents, you can be sure that your tax return will be accurate and complete. This can help you avoid any penalties or issues with the IRS and may even result in you receiving a larger tax refund.

3. Build your business expense paper trail.

As a self-employed individual, you have the advantage of being able to deduct business expenses from your taxable income, which can significantly reduce your overall tax bill. However, to take advantage of these deductions, you need to keep detailed records and receipts of all your business-related purchases throughout the year.

Fortunately, there are several tools and resources available to help you track your expenses and identify potential deductions. Additionally, it’s a good idea to jot down a brief explanation of the business purpose on each receipt to help you remember why the expense was incurred.

The bottom line

Filing taxes with side income doesn’t have to be daunting. By following these steps and utilizing tax filing software like TaxAct Self-Employed, you can confidently navigate the tax filing process and maximize your tax deductions. Remember, reporting your income accurately is not only a legal obligation but also ensures you’re taking full advantage of available tax benefits.

This article is for informational purposes only and not legal or financial advice.

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