On the Side

A Little Something on the Side

More and more, I’m hearing about people who have started “doing something on the side” to help bridge the income gap.  I admire their enthusiasm, ingenuity and hard work.  And then I think about income taxes.  Record keeping for income taxes is not usually at the forefront of the thought process when someone makes the decision to start their side business.

When we earn money, the government wants a piece.  We have to include income from these side businesses, but we can also deduct the expenses incurred to generate income, but only if good records are kept.  Assuming you’re in it to make a profit, you will likely need to file a schedule C with your personal income taxes. 

You may receive a form 1099-MISC from companies or individuals who paid you $600 or more.  Even if you do not, you need to report your income.  Consider keeping a list or spreadsheet to track income and expenses. 

Expenses that are both ordinary and necessary for your business can be deducted from the income you generate.  Keep a record of all expenses and keep your receipts in one folder or box.  Depending on the nature of your side business, expenses may include supplies, travel, dues & subscriptions, insurance, telephone, etc.  If you use your car for deliveries or sales calls, keep a log of dates, destinations, mileage, repairs & maintenance, insurance and purpose of each drive.  As your side business grows, consider establishing a separate bank account for use only by the business.  Depositing all business income and paying all expenses from one account can make tax time that much easier.

As always, let your CPA know about any changes in your income so they can keep you informed and up to date on your tax filings!  We encourage our clients to reach out to us during the year – better to be informed and meet all filing requirements, than to incur additional penalties and interest later.

Honorine M. Campisi, CPA