If you worked for cash in 2015, here are some important tips
Note: The advice in this post is not intended to replace the advice of a qualified tax preparer. Always seek professional input before preparing your own taxes.
Most of us at one time or another earn extra cash with a side gig. While this can help your bottom line, there are tax implications.
The 1099 form: If you worked for an individual or organization for cash, they must issue you a 1099 form if you earned over $600.00. You will need to report your earnings on your income tax form under “Misc. income.”
In some cases, a client or employer who paid you cash will go ahead and issue a 1099 even if you earned less than $600.00. This is preferable because record-keeping will be easier for you and there will be less chance of errors in reporting your income.
Either way, employers must mail out these forms no later than January 31st, so if you have not yet received yours, follow up immediately with your client or cash employer.
Why the 1099 is important: If there is a discrepancy between the earnings you reported to the IRS and the earnings reported by your client(s) and employer(s), processing your tax return will be delayed, along with any refunds.
At the same time, if the employer doesn’t report your earnings to the IRS, they, too, could face additional scrutiny and delays.
At the very least you’ll receive a letter from the IRS requesting correct information. At the very worst, it can trigger an audit or review.
If you’ve kept track of your earnings from each client and employer, be sure their income figures match your records.
Income and expense records: If you earned cash from a side gig in 2015, you’ll not only need to report your income, but you will also need to report your expenses.
Your tax preparer will attach either Schedule C or C-EZ to your tax return. If you are taking the DIY approach and filing your own taxes, you’ll need to complete Schedule SE to calculate your self-employment tax.
Keeping accurate income and expense records is key to filing an accurate return as well as calculating the correct amount of taxes you will owe. There are many apps and software programs that can help you track income and expenses such as Quickbooks, Harvest, or Excel.
Estimated Taxes: The amount of estimated taxes you may need to pay this year are based on your earnings in 2015. These taxes can be paid in quarterly installments or all at once. Your tax preparer can calculate your estimated tax.
Working for cash is a great way to help make ends meet. If 2015 was your first tax year working for cash, tax day will be different for you than in years past.
Have your taxes done by a professional and bring all of your 1099 forms, income/expense records, and any other documentation your tax preparer requests from you.
Don’t let the prospect of paying self-employment taxes scare you. Your tax preparer can help you in determining your estimated tax for this year.
You’ll avoid “sticker shock” and will be able to stay on top of your taxes. You’ll also avoid over-paying estimated taxes so you can keep the money where it belongs: with you.
By keeping accurate income and expense records you can make your side gig work for you and not for Uncle Sam.