Updated for tax year 2024.
If you’re self-employed and have many different business activities or side hustles, it can be confusing to know how to report them all on your taxes. There are certain rules you need to follow, like grouping similar activities together and keeping different ones separate. Let’s take a closer look at how to report your business activities so you can avoid problems with the IRS and make things easier for yourself this tax season.
At a glance:
- You can group similar business activities on one Schedule C, but make sure to keep unrelated activities separate.
- Spouses running separate businesses can’t combine them on one Schedule C.
- You can’t group activities together to hide losses, but losses from one activity can still offset gains from another.
- Report all self-employment income, regardless of the amount, for tax purposes.
How to decide if you have one or more Schedule C business
Many self-employed individuals often have more than one business activity going at once. To make things a little easier when record-keeping and filing your self-employed taxes, you can report closely related activities together on one Schedule C form. However, if you make income from two or more unrelated activities, you must report them all on separate Schedule Cs.
Example of related activities (grouped on one Schedule C)
For example, let’s say you are a self-employed dog groomer, but you also offer pet-sitting services occasionally on the side. These two activities are similar enough that you could simply consider yourself a pet care business and group them together on one Schedule C.
Example of unrelated activities (separate Schedule Cs)
As another example, let’s say you earn income selling handmade items online, and you also drive for Uber® or Lyft® on the weekends. These are two distinctly different types of business activities, meaning you’d need to fill out separate Schedule C forms for each income source.
Tax Tip: Businesses run separately by two spouses are considered unrelated activities. If you are actively participating in one business but not in another, you cannot combine them on one Schedule C.
FAQs for reporting self-employment income from multiple sources
Can I group all my activities into one business to avoid keeping track of separate income and expenses?
It would be great if you could just keep track of one set of income and expenses, even if you have more than one business activity. But in reality, this isn’t in your best interest. Keeping separate records, including separate records for business expenses — such as office supplies for your Etsy® store and vehicle mileage for your Uber side gig — may be more work, but it’s worthwhile to make sure you can take all the tax deductions for which you qualify.
Can I combine different activities into one business to avoid showing a loss from one activity?
No, the IRS expressly states that you cannot combine two activities to hide a loss from one of them. Besides, combining the two activities into one business probably would not affect your total tax liability. As long as your losses are not from passive activities, the loss from one business will reduce your total gain from all businesses.
Won’t my business be considered a hobby if I don’t show a profit in two out of five years?
Your business may be considered a hobby if you don’t make a profit for two out of the last five tax years, but that’s not always the case. Some businesses never make a profit but are still never considered a hobby. That’s because the profit rule-of-thumb is only one thing the IRS looks at to decide if a business is a hobby.
If your business is operating at a loss, you can still show that it is a business, not a hobby, by operating it in a business-like manner. This means keeping good business records and intending to make a profit. And if you own a business that is unlikely to be a hobby, such as a retail store or a construction company, you should have no problem convincing the IRS that you are operating a serious business.
Is there a minimum amount of money I have to make in an activity before I report it?
There is no minimum amount of self-employment income you must earn before you have to report it. You must always report all income, including barter income and income received in cash, regardless of the amount.
This misconception may come from the rules for self-employment tax, which state that you do not have to pay self-employment tax unless you earn $400 or more in total self-employment income.
How is self-employment tax calculated when I have more than one business?
Your self-employment income from all sources is combined to determine if you must pay self-employment tax. You must pay self-employment tax if your total self-employment income is $400 or more.
Reporting multiple activities as separate businesses won’t reduce your self-employment tax liability. Your net income from one business or another may be under $400, but it’s your total self-employment income that counts. So, if you earned $300 selling items online and another $1,000 driving for Uber, your combined self-employment income would be $1,300, meaning you’d need to pay self-employment taxes on the entire $1,300.
On the other hand, if you have a loss from one business and a gain from another business, the loss from one business reduces your gain from the other. Say you have a clothing store with a net profit of $20,000. You also own an espresso stand, which had a net loss of $10,000. This would give you a net self-employment income of $10,000 ($20,000 – $10,000).
The bottom line
As a self-employed taxpayer, it’s important to know how to report your business activities for tax purposes. Although it may seem complicated, you can simplify the process by grouping similar activities together on one Schedule C form. However, you’ll want to keep unrelated activities separate and keep separate records for each activity to determine what tax deductions you can take.
Ready to file your Schedule C income? TaxAct® Self-Employed can help you report your self-employment income and corresponding tax deductions accurately and confidently.
