Side Hustles Trigger Tax Obligations
Whether selling vinyl records on eBay, teaching tennis lessons paid via Venmo, or renting a home on Airbnb, side hustles often result in tax reporting requirements. Millions of Americans engage in such activities, with transactions for dog-walking to piano lessons creating digital records on platforms like Venmo and PayPal. H&R Block noted a 26% increase in Schedule C filings last year, used by sole proprietors to report business income.
1099-K Reporting Threshold Delay
The IRS postponed for one year a law mandating payment processors like Venmo, Cash App, and platforms such as eBay, Etsy, and Airbnb to issue 1099-K forms to users exceeding $600 in revenue. This rule applies starting next year's tax season, but taxpayers must still pay taxes owed on side income, with or without the form. Previously, platforms issued 1099-Ks only for over $20,000 in revenue across more than 200 transactions.
For many gig workers, they’re surprised that they own a small business in the eyes of the IRS.
Sole Proprietor Responsibilities
Side hustlers qualify as sole proprietors, requiring year-round record-keeping of income and expenses. Platforms send 1099-Ks based on total payments processed, not distinguishing personal from business. Gig workers report earned income on Schedule C, deducting related expenses. Landlords and Airbnb hosts use Schedule E for rental income, deducting repairs and maintenance.
Distinguishing Personal and Business Sales
Personal items sold at a loss, like used clothing from a closet cleanout, incur no tax and need no reporting. Profits from such sales are taxable on Form 8949 and Schedule D. Receiving a 1099-K for mixed sales requires categorizing transactions; losses go on Schedule 1. Reimbursements, like Venmo for a concert ticket, can be reported as received in error on Schedule 1.
Our taxes have always been pretty simple, but this year we’re talking to a CPA for the first time... I don’t want to make a mistake.
State Variations and Federal Exceptions
Some states already require 1099-Ks at lower thresholds: $600 in Maryland, Massachusetts, and others; $1,000 in New Jersey; varying amounts elsewhere. Federal exceptions include homeowners renting their residence for two weeks or less annually, exempting that income from tax.
Estimated Taxes for Side Income
Those with self-employment income over $1,000 alongside a W-2 job must make estimated tax payments if withholdings fall short. Deadlines for 2023 are April 18, June 15, September 15, and January 15, 2024. All taxable income must be reported, regardless of 1099 issuance.
