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A Henley Business School report found that 34% of people aged 16 to 24 have a money-making side hustle, and many more have a part-time or full-time job while in school. Many of us need to make a bit of money on the side, but you probably have a lot of tax questions about your gig.

5 Important Tax Questions You Probably Want Answered

You’ve probably wondered if your side gig is taxable income or whether you’re still classified as an employee. We’ll answer these two important questions and more in the following sections.

Question 1: Is Your Side Hustle Taxable Income? 

While a side hustle feels like something you do to get a bit of extra cash, it’s actually taxable income. In the eyes of the IRS, the income you make from your side hustle is just as taxable as the money you earn from a full-time or part-time job, so don’t forget to do your taxes yearly!

For your income to be taxed, you have to earn a minimum of $400 dollars in a tax year, which is much lower than the $12,950 you have to earn as an employee. Fortunately, you can take advantage of deductions to offset your tax burden, which can be high for most people.

Question 2: What Deductions Can I Take Advantage Of?

One advantage to being self-employed is the large number of deductions you use. But in order to get the most out of your write-offs, you need to plan your purchases in advance or track your business expenses via invoicing or bookkeeping. Or, you can invest in an accountant.

To understand the total number of deductions you can utilize, check out this list of the best write-offs by Keeper. These deductions include rent or mortgage, utilities, and insurance.

Keep in mind that you’re also entitled to other types of deductions that other classifications can also apply for. For example, you can deduct charity money and your personal health insurance premiums. If you have a retirement savings account, you can use that to deduct your taxes.

Question 3: Is Side Gig Income Self-Employment Income?

More likely than not, your side gig income is classified as self-employed income, which always means you pay more taxes than employed individuals. W-2 employees typically pay 7.65% taxes, whereas self-employed individuals pay 15.3% plus federal tax, totaling to 25% or more.

You may also have to pay quarterly taxes if you plan to owe $1,000 in self-employed income. The total you owe will depend on what you made the year prior, divided by 4. If you owe $1,000, you’ll have to pay the IRS $250 on April 15th, June 15th, September 15th, and January 15th.

Question 4: What Forms Do You Need To File Your Taxes?

Self-employed individuals need to file their income on Schedule C. To report your Social Security and Medicare taxes, you’ll need to fill out Schedule SE or Form 1040/1040-SR. If you’re going to make quarterly tax payments, Form 1040-ES is necessary for 4 dates.

Your clients will fill out and file Form 1099-NEC before sending it to you and the IRS. This form ensures that the income you’re claiming on the Schedule C is accurate and up to date.

If you don’t get this form by January 31st, or the information written on the 1099-NEC is incorrect, you need to contact the IRS immediately. If the IRS sees a discrepancy between both forms, they’re going to take the client’s side and potentially audit you, and no one wants that.

Question 5: How Long Do You Keep Your Receipts?

Even if you only plan to keep a side hustle for less than a year, you should still keep all of your receipts. The IRS is more likely to audit people who claim self-employment income, and if you don’t have the documentation readily available, you’ll have to waste time getting it for them.

The IRS recommends taxpayers to keep their receipts and records for 3 years unless they filed under a specific circumstance. For example, if you claim a bad debt deduction, you’ll need to keep your records for 7 years. In the end, it’s better to keep your records on you for 7 years.