Whether you're selling items online, freelance writing or refereeing travel soccer games for a youth league, a side job is a great way to pad your bank account. But, you're not the only one whose bottom line benefits from the side work you pick up after-hours: Uncle Sam's going to be taking a slice in taxes. Besides income taxes, your side work is also subject to self-employment taxes if you make more than $400 doing it, as of 2013. Besides losing a slice of your income to taxes, you've got some extra tax paperwork to fill out. And, if you were planning on cruising through your taxes with Form 1040-EZ, think again: The long Form 1040 is your only option when you have self-employment income.
Calculate your net income from your side work with either Schedule C or Schedule C-EZ. You can use the shorter Schedule C-EZ if you had business expenses of $5,000 or less, are a cash basis taxpayer, did not have any inventory, didn't have a net loss and have only one side business. To use this form, you also can't have any employees, you can't use Form 4562 for depreciation and amortization expenses, you can't deduct expenses for business use of your home and can't have prior year unallowed passive activity losses from this business. If you have any expenses from your side business, such as advertising, car expenses or supplies, you can use those to reduce your earnings.
Copy your net income from line 3 of Schedule C-EZ or line 31 of Schedule C to line 12 of your Form 1040 tax return. This amount adds to your taxable income for the year.
Copy your net self-employment income to line 1 of Schedule SE to figure your self-employment taxes if you have more than $400 for the year. You don't have an employer to split the payroll taxes with, so you're responsible for the entire Social Security tax and Medicare tax yourself. Schedule SE also figures the deductible portion of your self-employment taxes.
Copy your total self-employment taxes due from line 5 of Schedule SE to line 56 of your Form 1040. This is added to your taxes due for the year.
Transfer your total self-employment tax deduction from line 6 of Schedule SE to line 27 of your Form 1040 tax return. This amount reduces your adjusted gross income for the year.
You should receive a Form 1099-MISC from anyone who pays you more than $600 during the year as an independent contractor. However, even if you didn't receive a form, or made less than $600 from any given job, you're still required to report that income on your taxes.
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