Maximizing Your Summer Earnings: A Guide to Tax Implications and Planning

Summer is synonymous with sunshine, long weekends, and the opportunity to earn some extra cash. Whether you’re walking dogs, hosting guests through Airbnb, selling crafts at the farmers market, or picking up rideshare shifts, that added income can be a great boost. However, it’s crucial to remember that even small-scale freelance or seasonal work can have tax implications. With a little planning now, you can hold onto more of your hard-earned dollars.

What Counts as Taxable Supplemental Income?

Even if you’re making money outside of a traditional W-2 job, it’s likely considered taxable income. This includes app-based work like deliveries or tutoring, lawn care, craft sales, or even renting out your spare room at home. If you’re regularly offering services or accepting payments with the intention to earn a profit, the IRS generally sees it as a business, not just a hobby.

Understanding Taxable Income

The IRS defines taxable income broadly. If you earn money through any means—be it cash, checks, or digital payments—it’s generally taxable. This means that even if you’re not receiving a formal paycheck, your earnings still count.

Do I Really Need to Report It?

Short answer: yes. Even if you only made a few hundred dollars, you’re required to report self-employment income over $400. Platforms like Airbnb or Etsy may send you a 1099 form, but you’re still responsible for reporting income even if you don’t receive one.

Cash Payments? Still Taxable

Just because a payment wasn’t reported to you doesn’t mean it isn’t reportable by you. Cash payments are still considered income and must be reported on your tax return. Ignoring this can lead to penalties and interest down the line.

What Can I Deduct?

The good news is you may be able to deduct “ordinary and necessary” expenses related to your work. Here are a few examples:

For Drivers: Mileage, tolls, and insurance.
For Airbnb Hosts: Cleaning fees, linens, supplies, and a portion of utilities or insurance.
For Craft Sellers: Materials, vendor fees, packaging, and shipping supplies.
For Freelancers: Advertising, software, and a portion of phone and internet bills.

Keeping Good Records

To maximize your deductions, it’s essential to keep meticulous records. Save receipts, log mileage, and track everything consistently. This will not only help you during tax season but also provide clarity on your business expenses throughout the year.

Don’t Forget About Self-Employment Tax

When you earn income independently, you are responsible for both the employer and employee portions of Social Security and Medicare, which totals about 15.3%, in addition to regular income tax. If you make a significant amount from your supplemental income, consider setting aside a portion of your earnings or making quarterly estimated payments to stay ahead and avoid surprise penalties later.

Upcoming Estimated Payment Deadlines

For those planning ahead, the upcoming estimated payment deadlines for 2025 include June 15, September 15, and January 15. Mark these dates on your calendar to ensure you’re prepared.

Planning Tips

It might feel like “just a little extra cash,” but side income can add up quickly. To stay organized:

Open a Separate Bank Account: Create a dedicated account for your supplemental income and related expenses. This simplifies recordkeeping and makes tax preparation much easier.

Use a Basic Spreadsheet or Bookkeeping Software: A few minutes each week can save hours later. Tracking your income and expenses regularly helps you stay on top of your finances.

Consult a CPA: A conversation with a Certified Public Accountant can clarify questions about deductions, estimated payments, or whether your growing income could benefit from a different business structure.

Conclusion

Earning extra income this summer can be a fantastic way to meet financial goals, build a safety net, or even fund your next vacation. Just don’t let tax time catch you off guard. A little effort now—like keeping good records, understanding what’s deductible, and setting aside money for taxes—can go a long way in making next spring’s filing season a breeze.

If you have questions about your unique situation, a quick conversation with a CPA can help you feel confident, informed, and ready to make the most of your summer earnings.

Megan Williams, CPA, is a Senior Staff Accountant for Keller & Associates CPAs, PLLC.