The Rise of Side Hustles in the U.S.

According to recent data, 36% of adults in the United States engage in side hustles. These additional income sources serve varying purposes, such as aiding with essential expenses, contributing to retirement savings, or funding vacations.

Navigating Tax Season

Tax season is an inevitable reality for all side hustlers, regardless of income level. Unfortunately, many individuals venturing into side gigs lack the necessary understanding of their tax obligations.

As noted by a recent survey from tax preparation software provider TaxAct, a significant 56% of side hustlers express feeling uncertain about how to report their additional income. This indicates a clear gap in knowledge among many who partake in gig work.

Awareness of Tax Implications

The survey further reveals that only 44.1% of side hustlers are aware of the tax implications of their work and feel confident about filing, while 32.3% admit they require assistance despite being informed about those implications. Interestingly, 14.2% believe the tax implications do not apply to them, and 8.8% remain completely unaware of any tax responsibilities.

Filing Requirements for Side Hustlers

It is crucial for individuals with side hustles to understand that earning a net income of $400 or more from gig work necessitates filing a tax return, according to IRS guidelines. Misunderstanding this requirement could lead to costly mistakes.

“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,” says Karen Orosco, president of global consumer tax and service delivery at H&R Block. “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.”

Tips for Successful Tax Filing

To streamline the tax filing process, side hustlers can consider the following strategies:

• Maintain clear records of all income and expenses related to your side hustle.
• Set aside a portion of your earnings specifically for taxes to avoid last-minute financial stress.
• Utilize tax preparation software or seek professional assistance if you feel overwhelmed by the process.
• Stay informed about potential deductions and credits available for side hustle income.