Throughout the tax season I will be answering one tax question per day.
Today's question comes from D. Mertz in Louisiana. She asks, "I am employed full-time and have a w-2 from my employer. I also receive money about $1,000 per year from typing I do on the side. Last year I reported this on Schedule C with no expenses. But now I am thinking I should have reported the income on 1040 Line 21, Other Income. Can you tell me what I should do? If I do file differently, will it raise a red flag?"
Income you earn "on the side" is self-employment income. This is reported on Schedule C or C-EZ. If you have minimal expenses (under $5,000), you can report this income on Schedule C-EZ. You will also need to prepare Schedule SE to figure your self-employment tax.
You should not report this income on Form 1040 Line 21 as Other Income. There's a strong temptation to do so, because "other income" is not subject to self-employment taxes. However Line 21 is for income such as jury duty, gambling winnings, prizes, and income earned in foreign countries. You will raise a red flag with the IRS, because very likely you have a 1099-MISC reporting the income your earned as a freelance typist, and the IRS would expect that income to be reported on Schedule C or C-EZ.
- Freelance Tax Tips
- Schedule C Tax Tips
- Self-Employment Tax (Schedule SE)
- Other income (Form 1040 Line 21)