Side hustles have become increasingly popular among U.S. adults, with thirty-six percent of them engaging in some form of additional income-generating activity. Whether it’s to cover essential bills, save for retirement, or simply enjoy a vacation, side hustles offer a way to boost income and achieve financial goals. However, one aspect that every side hustler must contend with, especially during tax season, is the issue of taxes.
Many individuals who earn extra money through side hustles often lack the knowledge or tools to navigate tax season successfully. According to a survey conducted by TaxAct, a tax preparation software company, a significant percentage of side hustlers feel lost when it comes to reporting their additional income on their taxes. In fact, despite the growing prevalence of side hustles, a majority of those who currently work one struggle to understand the tax implications associated with their gigs.
The survey revealed that only 44.1% of side hustlers are fully aware of their gig’s tax implications and feel confident in filing their taxes, while 32.3% acknowledge the tax implications but require assistance with filing. Surprisingly, 14.2% of side hustlers are aware of the tax implications but believe they do not apply to them, and 8.8% were completely unaware of any tax implications at all. This lack of understanding can lead to costly mistakes, especially for those who assume they are exempt from paying taxes on their side hustle income.
It is crucial for side hustlers with steady incomes to recognize that they must file a tax return if they have net earnings of $400 or more from their gig work, as per the IRS guidelines. Failing to do so can result in penalties and financial consequences. Karen Orosco, president of global consumer tax and service delivery at H&R Block, emphasizes the importance of filing taxes promptly, even if one has not set aside money for taxes.
“Even if you find yourself in a situation where you didn’t set aside any money [for taxes], and now you’re going to owe, still file as quickly as possible because then you know exactly what that tax liability is,” Orosco told Entrepreneur. “There are payment options with the IRS. So the sooner you file, the more time you have to figure out how you’re going to make that payment.”
In conclusion, while side hustles can be a valuable source of additional income, it is essential for individuals engaged in such activities to educate themselves about the tax implications and obligations associated with their gig work. By staying informed and proactive about tax responsibilities, side hustlers can avoid potential pitfalls and ensure compliance with tax laws, ultimately safeguarding their financial well-being.
