Side Hustle/GIG Economy Reporting

There’s no question the landscape of income earning has changed dramatically with a big boom of side hustles and the gig economy.

A side hustle is any work that you take on outside of your day-to-day job. It’s “on the side” and meant as a secondary source of income. The gig economy refers to the entire labor market characterized by freelance work, on-demand online work and short-term contracts. It includes side hustles and represents a new way to look at overall income.

Although all income is required to be reported on filed taxes. Before 2022, the federal Form 1099-K reporting threshold was for taxpayers with more than 200 transactions worth an aggregate above $20,000. However, Congress slashed the limit as part of the American Rescue Plan Act of 2021, and the new limit is now a $600 threshold for receiving Form 1099-K for third-party payments.

The change applies to payments from third-party networks, such as Venmo or PayPal, for transactions such as part-time work, side jobs, selling goods and other side hustles. The IRS says you shouldn’t receive Form 1099-K for personal transfers, such as reimbursements for splitting meals, gifts or allowances.

With this new reporting threshold making sure all expenses incurred with the involvement in a side hustle/ gig economy is much more significant. Generally, deductible expenses include, for example, office supplies, business meals, health insurance, professional dues, car expenses and travel expenses. You can also take the home office deduction, which since 2018 has been denied to regular employees, even if their employer wants or allows them to work from home. To qualify, the home office must be a space you use exclusively and regularly for your business.

All of these and more are potentially deductible expenses, at least in part, if they are “ordinary and necessary” parts of running your business.

After you’ve figured your net income by subtracting your expenses from gross income, you’re likely to get yet another, even more significant deduction—20% of your “qualified business income” is deducted from your taxable income, provided that your total taxable income (for 2022) is under $170,000 for a single or $340,000 for joint filers.

However, documenting all these expenses are super important. Especially since, the taxpayer bears the burden of substantiating all expenses. Therefore, the recording of these expenses will be essential. If your record keeping has not been stellar to this point. Do not panic but start now to gather all receipts you may have maintained and specifically detailed electronic payments you have made for business expenses. These will be essential to the preparation of your tax returns to take make sure you are taking full advantage of all the tax deductions available to those involved with the Gig Economy or who has a Side Hustle.