With the rise of contractor and freelancer opportunities like Uber and Fiverr, it seems like there are more people in a contractor-based business model than ever before.
People have been making money “on the side” for years and when those side gigs were cash-only, it was difficult, if not impossible, to prove, from the IRS’s point of view, that any money had changed hands. After all, if you cut down a tree for the neighbors and charged them $200 to haul it off, there likely wasn’t any official record of it. Even less likely was the fact that it was reported as income and taxed.
Today, though, in a globally interconnected world, small businesses might contract with freelance designers, writers, and even skilled craftsmen to produce one particular item for a single price, and then, those folks are paid with PayPal or by swiping a credit or debit card. In other words, there is an electronic record that an individual or business paid another individual or business for a service or product.
So, if you have a side gig that helps to pay you – whether in your field of business or only just as a hobby, how can you make sure that Uncle Sam doesn’t rain on your parade?
Well, simple, just remember a few critical things:
- Money made from doing something is income. Plain and simple – if you get paid for doing something, then that something qualifies as income.
Income from hobbies is taxed different than income from businesses. Hobby income can be deducted, but not itemized.
- The IRS considers a business as being a money-making entity while a hobby may or may not do so. As such, a business can carry losses forward and backward, but not so with hobbies. Remember, too, that these two types of incomes are documented at different points in the return, so it is important to track these cashflows separately. This leads us to our third point…
- Keep GREAT records! If your side gig is an hourly one, then keep track of those hours and if there are expenses involved, then make sure that you note those expenses.
- Some expenses can be pro-rated. Your car, cell phone, and other items may be able to be analyzed for how they are used every day and in the side gig. It may not add up to a huge deduction, but every dime counts, right?
- Get a pro. There are over 72,000 pages of tax code on the books for the United States alone. It is difficult for any one individual to know for sure what actions will necessitate what reactions. In other words, a seasoned tax professional has access to a body of knowledge that many citizens don’t and that can save you loads of money in unnecessary taxes.
The bottom line is this – you started a side gig to make extra money, not create extra headache. There’s no reason to have to pay a small fortune because you tried to make some extra money on the weekends, so call me, sit down and SKYPE with us, and see how we can keep more of that money in your pocket instead of somebody else’s. Call us today at 407-287-6638 to book an appointment.