If you’ve been working a side hustle, you may be wondering if you need to claim that income on your taxes. It can be confusing to determine what is and isn’t taxable, and many people choose not to report their freelance income out of fear of being audited.
What does the IRS say about freelance income, and what happens if you don’t report it?
It’s not an issue of “if” but “how”
Essentially, you always have to report your income to the IRS, no matter what its source. From there, you can often make use of legitimate deductions to lower what is considered “countable” or taxable.
There are a few things to consider when determining how to report freelance income. First, you need to decide whether you are considered an independent contractor or a sole proprietor. If you are an independent contractor, you will need to file a Schedule C with your taxes. This is because independent contractors are considered self-employed, and therefore their income is subject to self-employment tax. However, if you are a sole proprietor, you will report your freelance income on your personal taxes through a Schedule SE.
So, what happens if you don’t claim your freelance income on your taxes? If the IRS catches you not paying taxes on your freelance income, you could be subject to penalties and interest.
If you’re ever unsure whether or not you need to claim something on your taxes, it’s always best to consult with someone who can help you determine what is and isn’t taxable and help you file your taxes correctly.