The IRS has issued advice for small businesses during tax season, urging them to use the Small Business and Self-Employed Tax Center on IRS.gov. Many small business owners operate as self-employed or independent contractors, with different tax requirements than businesses with employees. Side income counts as revenue and must be reported on tax returns. To properly file, keep track of invoices, payments, and expenses. A tax professional can help determine if your side hustle needs to be reported and what deductions are available.
Federal taxes are taken on earnings up to a certain amount, while state and city taxes can also apply. Some states like Florida, Texas, and Alaska do not have an income tax. To avoid a large yearly tax burden, small businesses can use Form 1040-ES to show expected income subject to self-employment taxes. Quarterly estimated taxes can be paid in advance to reduce future penalties and interest. While taxes were due by April 15, filing and paying as much as possible can reduce penalties.
The IRS Small Business and Self-Employed Tax Center offers resources for starting and operating a small business efficiently. Employers can find identification numbers and file and pay taxes through the site. Webinars and workshops are available for those looking to understand business income and expenses. For those who need to close a business from a federal tax perspective, the IRS can assist with that process.
Taxpayers operating side hustles must report income above $400 on tax returns, keeping track of all financial transactions. Certain hobby criteria may exempt the hobby from federal taxes, but consulting a tax professional is advised. Deductions for business expenses such as car mileage, subscriptions, tools, and office equipment can reduce tax liability. Understanding federal and state tax obligations before filing can help prevent overspending and prepare for tax season.
Filing a tax return as soon as possible after missing the April 15 deadline is recommended to reduce penalties and interest. Paying as much as possible at the time of filing can also help lessen future financial liabilities. The IRS offers tools for small businesses and gig workers to navigate tax obligations, with resources available for understanding and managing business income and expenses.
