Like a lot of things in the tax code, the answer to the question “Do I have to report income if it’s less than $600?” is: it depends. It’s frustrating, but you have a lot to consider to ensure you’re following the state and federal laws.
In general, if you earn less than $600 in total from all income sources during a year, you won’t need to report it or file a tax return. However, if you earn more than the minimum income threshold in total, you are required to report all income regardless of its amount.
The amounts vary depending on your age, marital status, and dependents. The easiest way to determine what you need to do is to use the free tool from the IRS. It can help you determine whether you need to report income and file taxes.
What Is Taxable Income?
Taxable income is the amount you earn that the government says is subject to tax. It can be less than the total amount you earn each year because you’re allowed to deduct business expenses.
Your gross income is everything you earn. This includes earnings from working, interest in bank accounts, doing side jobs, or winning the lottery. After you deduct any expenses for procuring or doing business, what’s leftover is your taxed income.
How Do You Record Income?
If you earn more than $600 from any one source or combination of sources as a gig worker, freelance worker, or independent contractor, the organization is required to send you a 1099 form. However, you shouldn’t rely on organizations to keep your tax records for you.
It’s up to you to keep accurate records of your income. You should also track receipts from any legitimate expenses that you plan to use to offset your gross income.
Depending on the amount of your income and the number of sources it comes from, you may be able to use a spreadsheet such as Google Sheets or Microsoft Excel to record it. You can even write it by hand in a journal if you want. You can also use software, such as QuickBooks, FreshBooks, or Wave, to keep track. The method you use is less important than the accuracy and accessibility of the information.
Make sure you also keep track of contact information from any place you receive income. This will help if you’re ever questioned about the accuracy of your record-keeping.
What Happens If You Don’t Report Your Income?
It makes us cringe just to think about it. If you fail to report income – or report it inaccurately – the best-case scenario is that you’ll have to pay taxes at a later date, along with tax penalties. These penalties can be 5% of your unpaid taxes for each month you’re late in reporting your income to the IRS. Worse-case scenarios can include jail time and significant financial penalties.
Filing Your Taxes
Many independent contractors choose this lifestyle because of the benefit of working for themselves. Others do it as side jobs or as temporary work while looking for full-time employment. Whatever your reason, it’s crucial that you keep accurate records to make it easy to file your tax return as an independent contractor each year.
About the Author: Paul Dughi has an MBA in Business Administration and has held executive management positions in the media industry for the past 30 years. He is an Emmy® Award winning Producer/Writer and has authored two books on Marketing, Management, and Sales. You can find him on WriterAccess.