You’ve been working at your regular, full-time job for a few years now. This year, you decided to use your free time to earn a little extra income. So you started marketing yourself as a freelance consultant for local businesses in your area. The money you earn from this work allows you to treat yourself to a well-deserved vacation or establish a rainy-day fund.
Then tax season rolls around. You scan through your 1040 and realize you’re not sure how to categorize this additional income.
Is it a side gig or a second job?
Your extra income can fall under one of two categories on your tax return: Other Income (line 21 on Form 1040) or Self-Employment (for which you need to complete Schedule C and perhaps also Schedule SE, if applicable). How do you know which applies to you?
The IRS considers you to be self-employed if:
- Your main motivation in doing the work is to make a profit (regardless of whether you actually do) and
- Your work is regular, frequent or continuous.
If the work you’re engaged in is too sporadic to meet the above classification, then you can report these earnings as other income.
A note on miscellaneous income
It’s worth noting that in addition to money you earn from a hobby or occasional work, you also need to report non-monetary earnings. For instance, if a company pays you with property or services, this still counts as income that’s reportable to the IRS.
Regardless of whether your extra income comes from a side gig or a second job, if the company that contracted you paid you more than $600 in the tax year, they should send you a form 1099-MISC—which you will use to file your tax return. If you do not receive this form by January 31, contact the company to inquire about its status.
Additional sources of income can make your tax situation more complicated. To ensure you don’t report your earnings incorrectly, it’s worth having an experienced tax attorney prepare your tax return for you.