Tax Tip Tuesdays: The Tax Implications of Side Gigs

Side gigs are more common than ever. Whether you’re driving for a rideshare service, selling on Etsy, tutoring online, or freelancing after hours, you’re participating in what the IRS calls the “gig economy.” While it’s a great way to boost your income, there are some important tax responsibilities that come with it—especially if you want to stay off the IRS’s radar.

All Side Gig Income Is Taxable

Let’s be clear: if you’re earning money from a side hustle, it’s taxable. This includes:

• Cash payments

• Payments through platforms like PayPal, Venmo, or Zelle

• Direct deposits

• Barter exchanges (yes, even if no cash changes hands)

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Even if you don’t receive a 1099-NEC or 1099-K, you are still required to report the income on your tax return. If the IRS finds out you underreported income, penalties and interest may apply—sometimes years later.

You’re a Business in the IRS’s Eyes

When you work a side gig, you’re considered self-employed. That means you’re running a business, whether you have a formal business name or not. This has a few key tax consequences:

1. You Pay Self-Employment Tax

In addition to regular income tax, self-employed individuals pay self-employment tax, which covers Social Security and Medicare. The current rate is 15.3%, and it’s based on your net income (after business expenses).

2. You May Need to Make Estimated Payments

If your side gig is generating consistent income, you may need to pay estimated taxes quarterly to avoid underpayment penalties. This is especially important if you don’t have enough withholding from your main job to cover your total tax liability.

3. You Can Deduct Legitimate Business Expenses

One benefit of being self-employed is the ability to deduct expenses related to your gig—things like software, mileage, internet costs (if used for business), and tools or supplies. These deductions reduce your taxable income, which means you pay less tax overall.

Side Gigs and Other Tax Considerations

Here are a few additional points that can trip up taxpayers with side income:

• Hobby vs. Business: If your activity is not intended to make a profit, it may be classified as a hobby—and that means no business deductions. Intent matters.

  
  

• State Taxes: Don’t forget your state. If you’re earning side gig income, your state may also expect a piece of the pie.

  
  

• Marketplace Sellers: If you sell goods on platforms like eBay, Amazon, or Facebook Marketplace, be aware that tax reporting thresholds have changed. You may receive a 1099-K for payments over $600, starting in 2025.

  
  

Having a side hustle is empowering, but it comes with real tax obligations. If you’re not planning ahead, you could end up with a larger tax bill than expected—or worse, penalties for underreporting. Treat your side gig like a business, understand your filing obligations, and if you need assistance with your taxes you can reach out to us at info@mkhstaxgroup.com.