Taxes and Your Side Hustle
Just when you thought you were finished dealing with tax season, the IRS is implementing a new rule for self-employment income in 2022.
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A side hustle is a great way to earn extra cash to save for a vacation or pay off debt. Over 34% of workers now have a side hustle, whether it’s a business they founded or second or even third job. Budding entrepreneurs often use a side hustle as a way to try out new ideas to launch a business before leaving their full-time jobs. Many of these entrepreneurs use Venmo, PayPal or website providers to handle invoices and payments.
Something you may not know is that these service providers are required to report payments to the IRS. Regulations are changing in 2022 that requires third-party apps to report any transactions over $600 who will issue you a Form 1099-K that reports your business income.
To help keep track business income and expenses it’s a good idea to set up a separate business account on these platforms as well as setting up a separate bank account. Tracking expenses could help lower your net self-employed income, which means paying fewer taxes. The IRS has a resource page for self-employed individuals.
According to the IRS “Self-employed individuals generally must pay self-employment tax (SE tax) as well as income tax. SE tax is a Social Security and Medicare tax primarily for individuals who work for themselves. It is similar to the Social Security and Medicare taxes withheld from the pay of most wage earners.”You may also be required to make tax quarterly payments during the year.