Question: I’m running a small business on the side. How does that affect my taxes?
Answer: If you’re running a business on the side, like freelance writing or graphic design, and earn a substantial profit from it, check to make sure that you have been properly classified for the services provided before you do your taxes. According to the IRS, your clients will weigh a number of factors before determining if you are an employee or independent contractor, including how much control and independence you have over the job. If you’re filing just for the side hustle, it’s safe to say you would be declared an independent contractor. As an independent contractor, you will need to complete and file Form W-9 or Form 1099-MISC in order to pay the associated taxes on your earned income.
In addition to proper classification, you may also consider paying estimated taxes. If your side business is anticipated to generate enough income that you’ll owe more than $1,000 to the IRS, you must fill out Form 1040-ES and send in quarterly estimated tax payments. These quarterly payments are due on the 15th of April, June, September, and January.
Running a side business and reporting its income can also help you save extra money by writing off business expenses. Examples include a new computer or smartphone, and general startup costs as long as these expenses are actually being used for your side business.
This post has been updated for the 2017 tax season.
Are you looking to open a small business? Here are a few more helpful articles from Deborah Sweeney to get you started: