How to Declare the Money Earned From Side Work
Having side income can offer benefits. You might gain the satisfaction of pursuing a passion. You might gain the power to dedicate the money toward a long-held goal, such as a vacation, a new home or secondary education. But that extra income also carries obligations. You have to report your side income to the IRS, and you may be required to pay self-employment tax as well. Declaring the money earned from side income requires completing the correct IRS forms.
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Instructions
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Track your side work earnings and expenses throughout the tax year. Use financial software, spreadsheets or manual methods, but keep good records. Store the records for at least three years.
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Retrieve IRS Form 1040 Schedule C. Find the form online, or at libraries or government office buildings, for example. Schedule C is the form you use to report income from a business.
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Follow the directions for completing Schedule C. If you are using paper forms, look for the Schedule C instructions in the instruction booklet that comes with Form 1040. If you use tax-filing software on your desktop or online, once you indicate you have side income, the software will prompt you through the process of completing Schedule C. On Schedule C, you will also report your side business expenses. If your expenses happen to exceed your earnings, you may end up with a net business loss. This can lead to a reduction in your personal income tax burden.
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Pay self-employment tax. If you earn more than $400 from your side business, you may be liable for self-employment tax. Self-employment tax is equivalent to Social Security and Medicare tax ordinarily withheld from employee paychecks. To calculate your self-employment tax, you need to complete Schedule SE.
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