Reporting self-employment income on Schedule C
Updated to tax year 2024.
If your self-employed, and you have many different side hustles or business activities, it can be confusing knowing how to report all of them on your taxes. You must follow certain rules, such as grouping related activities together and keeping them separate. Let’s take a closer look at how to report your business activities so you can avoid problems with the IRS and make things easier for yourself this tax season.
At a glance:
- You can group similar business activities on one Schedule C, but make sure to keep unrelated activities separate.
- Spouses running separate businesses can’t combine them on one Schedule C.
- You can’t group activities together to hide losses, but losses from one activity can still offset gains from another.
- Report all self-employment income, regardless of the amount, for tax purposes.
How to decide if you have one or more Schedule C business
Many self-employed individuals often have more than one business activity going at once. You can group closely related activities on one Schedule C to make it easier for you to keep track of your taxes and file them. Example of related activities (grouped together on one Schedule C
For instance, let’s say that you are a dog groomer who also offers pet-sitting on the side. This is a similar enough business that you can group it together on one Schedule C. Tax tip: Two spouses running separate businesses are considered unrelated. You cannot combine Schedule Cs if you are active in one business and not in another. This is not in your best interests. Can I combine different activities into a single business to avoid reporting a loss for one activity? Combining the two activities would probably not affect your overall tax liability. As long as your losses are not from passive activities, the loss from one business will reduce your total gain from all businesses.
Won’t my business be considered a hobby if I don’t show a profit in two out of five years?
Your business may be considered a hobby if you don’t make a profit for two out of the last five tax years, but that’s not always the case. Some businesses may never make a profit, but they are never considered a “hobby”. The IRS does not consider a business a hobby if it makes a profit. This means maintaining good business records and intending on making a profit. You must always report all income, including barter income and cash received, regardless of the amount. You must always report all income, including barter income and income received in cash, regardless of the amount.
This misconception may come from the rules for self-employment tax, which state that you do not have to pay self-employment tax unless you earn $400 or more in total self-employment income.
How is self-employment tax calculated when I have more than one business?
Your self-employment income from all sources is combined to determine if you must pay self-employment tax. You must pay self-employment tax if your total self-employment income is $400 or more.
Reporting multiple activities as separate businesses won’t reduce your self-employment tax liability. It doesn’t matter if your net income is less than $400. What matters is the total amount of self-employment income. If you earn $300 online selling items and another $1,000 driving with Uber, then your combined self employment income is $1,300. You would have to pay self employment taxes on the $1,300. Imagine you own a clothing shop with a net gain of $20,000. This would give you a net self-employment income of $10,000 ($20,000 – $10,000). This would give you a Net Self-employment Income of $10,000 ($20,000-$10,000).
The bottom-line
As an independent taxpayer, it is important to know how to declare your business activities to the IRS. You can simplify the process, even though it may seem complex, by grouping together similar activities on one Schedule C. TaxAct(r) Self-Employed can help you report your self-employment income and corresponding tax deductions accurately and confidently. TaxAct(r) Self-Employed can help you report your self-employment income and corresponding tax deductions accurately and confidently.
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