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William Perez

Income from a Side Job: Tax Question of the Day

By February 4, 2006

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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.

Additional information:

Throughout the tax season I will be answering one tax question per day. Do you have a question? Visit the Ask a Tax Question page. Disagree with my answers? Post your comments in the Tax Forum.

December 4, 2010 at 2:24 pm
(1) Chantel says:

This is good information. Thank you. Just to be clear, this lady would need to fill out the Schedule C-EZ for her side incomes in addition to her regular taxes for work? And it’s not required that she have business license or EIN to fill out the C-EZ correct?

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