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The Taxability of Side Hustles

  • Writer: David Gearhart
    David Gearhart
  • 37 minutes ago
  • 2 min read

One item that Dave Ramsey consistently hits on is the importance of a side hustle to increase income and better reach your financial goals. Side hustles come in all shapes and sizes: food delivery, lemonade stands, woodworking, buying and selling trading cards, and/or starting a lawn care business. The possibilities are virtually endless. Although some of them can be straightforward from a tax perspective, others can become very complicated. In this article, I will go over several tax items to consider when starting a new side hustle.

 

Part-Time Jobs

 

The simplest side hustle from a tax perspective would be taking on another job. Typically, the income from the side hustle is added to your income for the year, and from there, it is business as usual. One important item to consider is the withholdings for this part-time job. If you make under a certain amount at your part-time job, your employers will not withhold any taxes from your income automatically. This could not be an issue if that was your only source of income, but this could create serious issues and potentially lead to penalties when added to the income from your main job.


The only other item to consider is any employer-sponsored retirement plans offered by your side hustle employer. There are several limits placed on the amount you can save in different retirement accounts, and there can be penalties associated with going over those limits. To ensure you don’t exceed any of those limits, it's best to schedule a meeting with one of our advisors.

 

Hobby vs. Business Income

 

For other types of side-hustle income, the IRS uses several tests to determine whether it is income from a hobby or a business. The results of this test can have massive implications for the taxability of any income derived from this activity. Several factors are considered, each with equal importance. Some of the factors include:

 

1.     Activity is carried out in a business-like manner

2.    Intention of profit

3.    Dependency on income from this activity for your livelihood

4.    Personal motives (enjoyment, relaxation, etc.) from the activity

5.    Having enough income from other sources to fund the activity

6.    A more detailed list can be found on the IRS website here.

 

Regardless of whether the activity is considered a hobby or a business activity, the income must be reported, no matter what. However, the key difference lies in deductions. There are no deductions you can take for a hobby, which means you cannot use any expenses to offset any income you generate. However, with a business activity, you can use expenses you incur to offset any profit generated from the business. This also has the potential to expand into your other sources of income, depending on various factors.


Business activity is by no means a “one size fits all” matter on the tax side of things, so it would be best to consult a tax professional to go over your specific situation. Reach out to Whitaker Myers Wealth Managers for more information or schedule a meeting with your financial advisor.

 

Whitaker-Myers Wealth Managers is an SEC-registered investment adviser firm. The information presented is for educational purposes only and intended for a broad audience. The information does not intend to make an offer or solicitation to sell or purchase any specific securities, investments, or investment strategies. Investments involve risk and are not guaranteed. Whitaker-Myers Wealth Managers reasonably believes that this marketing does not include any false or misleading statements or omissions of facts regarding services, investment, or client experience. Whitaker-Myers Wealth Managers has a reasonable belief that the content will not cause an untrue or misleading implication regarding the adviser’s services, investments, or client experiences. Please refer to the firm’s ADV Part 2A for material risks disclosures.

​

Past performance of specific investment advice should not be relied upon without knowledge of certain circumstances of market events, the nature and timing of the investments, and relevant constraints of the investment. Whitaker-Myers Wealth Managers has presented information in a fair and balanced manner.

​

Copyright (c) 2023 Clearnomics, Inc. and Whitaker-Myers Wealth Managers, LTD. All rights reserved. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness, or correctness of the information and opinions contained herein. The views and the other information provided are subject to change without notice. All reports posted on or via www.clearnomics.com or any affiliated websites, applications, or services are issued without regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and are not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Past performance is not necessarily a guide to future results. Company fundamentals and earnings may be mentioned occasionally, but should not be construed as a recommendation to buy, sell, or hold the company's stock. Predictions, forecasts, and estimates for any and all markets should not be construed as recommendations to buy, sell, or hold any security--including mutual funds, futures contracts, and exchange traded funds, or any similar instruments. The text, images, and other materials contained or displayed in this report are proprietary to Clearnomics, Inc. and constitute valuable intellectual property. All unauthorized reproduction or other use of material from Clearnomics, Inc. shall be deemed willful infringement(s) of this copyright and other proprietary and intellectual property rights, including but not limited to, rights of privacy. Clearnomics, Inc. expressly reserves all rights in connection with its intellectual property, including without limitation the right to block the transfer of its products and services and/or to track usage thereof, through electronic tracking technology, and all other lawful means, now known or hereafter devised. Clearnomics, Inc. reserves the right, without further notice, to pursue to the fullest extent allowed by the law any and all criminal and civil remedies for the violation of its rights.

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Whitaker-Myers Wealth Managers is an SEC-registered investment adviser firm. The information presented is for educational purposes only and intended for a broad audience. The information does not intend to make an offer or solicitation to sell or purchase any specific securities, investments, or investment strategies. Investments involve risk and are not guaranteed. Whitaker-Myers Wealth Managers reasonably believes that this marketing does not include any false or misleading statements or omissions of facts regarding services, investment, or client experience. Whitaker-Myers Wealth Managers has a reasonable belief that the content will not cause an untrue or misleading implication regarding the adviser’s services, investments, or client experiences. Please refer to the firm’s ADV Part 2A for material risks disclosures.

​

Past performance of specific investment advice should not be relied upon without knowledge of certain circumstances of market events, the nature and timing of the investments, and relevant constraints of the investment. Whitaker-Myers Wealth Managers has presented information in a fair and balanced manner.

​

Copyright (c) 2023 Clearnomics, Inc. and Whitaker-Myers Wealth Managers, LTD. All rights reserved. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness, or correctness of the information and opinions contained herein. The views and the other information provided are subject to change without notice. All reports posted on or via www.clearnomics.com or any affiliated websites, applications, or services are issued without regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and are not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Past performance is not necessarily a guide to future results. Company fundamentals and earnings may be mentioned occasionally, but should not be construed as a recommendation to buy, sell, or hold the company's stock. Predictions, forecasts, and estimates for any and all markets should not be construed as recommendations to buy, sell, or hold any security--including mutual funds, futures contracts, and exchange traded funds, or any similar instruments. The text, images, and other materials contained or displayed in this report are proprietary to Clearnomics, Inc. and constitute valuable intellectual property. All unauthorized reproduction or other use of material from Clearnomics, Inc. shall be deemed willful infringement(s) of this copyright and other proprietary and intellectual property rights, including but not limited to, rights of privacy. Clearnomics, Inc. expressly reserves all rights in connection with its intellectual property, including without limitation the right to block the transfer of its products and services and/or to track usage thereof, through electronic tracking technology, and all other lawful means, now known or hereafter devised. Clearnomics, Inc. reserves the right, without further notice, to pursue to the fullest extent allowed by the law any and all criminal and civil remedies for the violation of its rights.

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