Working online has become a popular way to make money. Some people work online full-time, while others use online jobs to earn extra money after work or on weekends.
You might work as a freelancer, graphic designer, programmer, photographer, social media manager, content creator, online seller, virtual assistant, consultant, or delivery and gig worker. No matter how you earn your money, it is important to understand that income earned online may still need to be reported on your tax return.
At Local Tax, we help individuals, freelancers, independent contractors, and small business owners understand their taxes and properly report their income.
Do You Have to Pay Taxes on Money Earned Online?
In many cases, yes.
The IRS says income earned through gig work must generally be reported, even when the work is only part-time, temporary, or a side job. Income may also need to be reported even if you do not receive a tax form such as a 1099.
This can include money earned from:
- Freelance and contract work
- Online consulting
- Graphic design or website development
- Photography and video work
- Social media services
- Selling products online
- Content creation
- Virtual assistant work
- App-based and gig work
- Other online side jobs
A common mistake is thinking that a small side hustle does not count because it is not a traditional job. The IRS generally considers gig and freelance income taxable income.
Employee or Independent Contractor?
One of the first things to determine is whether you are an employee or an independent contractor.
If you are an employee working remotely, your employer will normally provide a W-2 and withhold taxes from your paycheck.
If you are an independent contractor, taxes usually are not automatically withheld from your payments. Independent contractors are generally considered self-employed and normally report their business income and expenses on Schedule C.
This means you may have more responsibility for keeping track of your income, expenses, and taxes throughout the year.
What About 1099 Forms?
People who make money online may receive tax forms such as a 1099-NEC, 1099-K, or 1099-MISC, depending on how they earned and received their money.
However, not receiving a 1099 does not automatically mean that the income can be ignored. The IRS states that gig workers should keep records of the money they receive and report taxable income even when it was not reported to them on a 1099 or W-2.
Keeping good records throughout the year can make tax season much easier.
Don’t Forget About Self-Employment Taxes
Independent contractors and freelancers may have to pay more than regular income tax.
Self-employed individuals generally pay self-employment tax, which covers Social Security and Medicare taxes. The IRS says a person generally must file Schedule SE when net earnings from self-employment are $400 or more.
This can surprise someone who is working online for the first time. Unlike a regular employee, there may not be an employer automatically taking these taxes out of every payment.
You May Need to Pay Estimated Taxes
Some self-employed workers also need to make estimated tax payments during the year instead of waiting until tax season.
Individuals generally may need estimated payments if they expect to owe $1,000 or more in tax when their return is filed, although the exact rules depend on the person’s situation.
Planning ahead can help prevent a large unexpected tax bill.
Keep Track of Your Business Expenses
If you are self-employed, certain ordinary and necessary business expenses may be deductible.
For example, depending on your work and circumstances, expenses related to equipment, software, supplies, advertising, professional services, or qualifying business use of your home may affect your taxable business profit.
The important part is keeping good records. Save receipts, invoices, payment records, and other documents related to your online work. The IRS specifically recommends that gig workers maintain records of both their income and expenses.
Online Work Can Become a Real Business
What starts as a small online side hustle can grow quickly.
Maybe you begin by making a few hundred dollars from freelance projects. Later, you could have regular clients and thousands of dollars in annual income.
As your income grows, your tax situation can become more complicated. You may have business expenses, estimated tax payments, self-employment taxes, and additional recordkeeping responsibilities.
Getting organized early can make managing your online business much easier.
How Local Tax Can Help Online Workers
You don’t have to figure everything out by yourself.
Local Tax can help freelancers, independent contractors, online workers, and small business owners understand how their income should be reported. We can help you organize your tax information, identify applicable business expenses, understand 1099 forms, prepare your tax return, and determine whether estimated tax payments may apply to your situation.
Whether your online job is a small side hustle or your main source of income, getting professional tax help can give you a clearer picture of what you owe and what records you should keep.
Contact Local Tax today for help preparing your individual or small business taxes.
Local Tax
9429 Somerset Blvd
Bellflower, CA 90706
(562) 925-2203
