People are taking on side projects to augment their income in today’s gig economy in greater numbers. It is crucial to know how to declare your side gig income on your 2024 tax return, regardless of whether you are a business owner, freelancer, or just someone trying to make some additional cash on the side. Correct reporting of income is essential since under-reporting can result in fines and penalties from the IRS. The ideal methods for disclosing side gig earnings and some pointers for optimizing your tax deductions will be covered in this post.
Creating a Form 1099-NEC Understanding
In the event that a client pays you $600 or more for your services during the tax year, you, as a freelancer or independent contractor, will probably receive a Form 1099-NEC. Reports of fees, commissions, prizes, and awards are made using this form for non-employee pay. Because this information will be reported on your Form 1099-NEC, it’s critical that you maintain track of all the money you earn from side gigs during the year.
Verify the accuracy of your Form 1099-NEC by carefully reading it once you receive it. Get in touch with the customer who provided the form if you see any errors and ask for a revised copy. Ensuring the accuracy of your Form 1099-NEC is vital since failing to disclose all of your income may result in penalties from the IRS.
Completing the Medicare and Social Security Tax Calculation
Your employer and employee shares of Social Security and Medicare taxes must be paid if you work for yourself. With 2.9% going toward Medicare and 12.4% going toward Social Security, the current self-employment tax rate is 15.3%. That being said, you may claim a tax return adjustment for income on half of this amount.
Online 1099 tax calculator is available for help in determining your self-employment tax. The calculator will tell you how much you owe in Social Security and Medicare taxes if you just enter your total income from side gigs. A large tax burden at tax time could arise from neglecting to set away a portion of your income for these taxes throughout the year.
Calculating and Paying Estimated Tax
Self-employed persons must pay their estimated taxes to the IRS on a quarterly basis, in contrast to regular employees who have taxes deducted from their paychecks. April, June, September, and January 15 of the following year are the deadlines for these payments. Penalties and interest on the outstanding balance may apply if you don’t make these transactions.
Form 1040-ES can be downloaded from the IRS website and used to estimate your estimated tax payments. Using the information from your side gigs and any possible credits or deductions, this form will help you calculate your annual tax liability. For the purpose of avoiding IRS penalties and fines, it is imperative that these payments be made on time.
Be sure to note the 2024 estimated tax due dates: April 15, June 17, September 16, and January 15, 2025.
The Best Way to Maximize Your Tax Savings
To optimize your tax savings and minimize your tax liability, as a freelancer or business owner, you can employ a number of tactics. Leveraging the credits and deductions available to self-employed individuals is one typical tactic. Expenses like supplies, travel, and home office costs may be deductible in relation to your side gigs, for instance.
Contributions to retirement funds, like those in a Solo 401(k) or SEP IRA, are an additional tactic. Reducing your taxable income and saving for retirement can be achieved simultaneously by making contributions to a retirement plan. To find the right retirement plan for you and how much you may contribute, it’s necessary to speak with a tax specialist.
In conclusion, even though it can be difficult to declare side gig income on your 2024 tax return, you can optimize your tax savings and stay in compliance with the IRS if you have the appropriate information and tools. You may confidently handle the tax ramifications of your side employment by comprehending Form 1099-NEC, computing Social Security and Medicare taxes, placing projected tax payments, and optimizing your tax savings. Get advice from a tax expert without holding back if you have questions about how to record your income or need assistance with your tax return.