Well, so you have secured some side hustle to pay for that avocado toast. Nice work, congratulations on your entrepreneurship. Now it is time to pay taxes and the IRS could not wait for a share of your money.
The Reality Check
If you have earned more than $400 through freelancing, tutoring, or Uber, you have to pay self-employment taxes. This is unlike income taxes. Self-employment tax is used to make your Social Security and Medicare contributions. Usually, in your usual job, such responsibilities lie on your boss.
But there is good news – you can deduct your business expenses which are mileage, subscription fees for software, equipment and that portion of your internet payment that you use for work. Hold onto every receipt; it makes the IRS happy.
Forms You Actually Need
There is no use of the W-2 form that you receive from your campus job. Gig work provides you 1099-NEC or 1099-K forms respectively. They are issued by DoorDash and Upwork in early January.
But the bad news is – you have to report all income regardless of whether you have received that 1099 form or not. No matter what, you have to report all income regardless of what kind of platform you have worked with.
Quarterly Payments Exist
This is something you were not prepared for. In case you expect to pay at least $1,000 in taxes, quarterly payments are obligatory. The deadlines are in April, June, September, and January.
Failure to pay quarterly payments results in penalties and interest payments. The estimations of those are available in TurboTax and H&R Block calculators. One has to put aside 25 to 30 percent of each paycheck.
Filing Your Return
Schedule C describes your profit or loss while Schedule SE states your self-employment tax. All these documents are to be attached to the Form 1040.
You can utilize FreeTaxUSA and Cash App Taxes which are free. TurboTax is also great but it will cost you when you add your self-employment income. To sum up, the free options will cope with the job perfectly.
Last But Not Least
Track expenses weekly and not annually. Checking your annual bank statement in April is awful. There are Everlance and Stride which could help you with it.
Future you will be thankful during the tax season. Paying Uncle Sam more than necessary because of your negligence is the last thing you want.