The Man gets me down

November 7, 2005 10:08 AM

When does helping an associate out, in exchange for cash, become a second job? I'm worried about tax implications...

I've been helping a woman sell items on Ebay for a few months now, on and off, but it is about to become a weekly deal. She does own her own business, but this is unrelated to that. I'm paid via check and usually work from 6-10 hours at a time, for 10$ or so. It's not much but it seems to be adding up and there is an obvious paper trail.

I know nothing about taxes, and don't even know if this is applicable as I have a whole mental block when it comes to money issues. Should I bring up my worries with her? Am I just overthinking this?

Any suggestions would be appreciated...

posted by sporky to Work & Money (7 answers total)

Anytime you receive funds (or barter) for labour your suppose to report it. The income tax people would like you to report the $100 you made at your garage sale last week.

Practically as long as the money doesn't show in an audit your usually fine. However cheques wrote to you on a regular basis are kind of hard to hide. And it's not about how well you hide the money but what happens when your associate is audited.

In Canada there is a box on our income tax form where we can declare any non T4'd income, I used it all the time during college to report contact income. I know the US code is much more byzatine but I'd bet there is a similiar line item somewhere.
posted by Mitheral at 10:19 AM on November 7, 2005

The normal way to handle such income is to treat yourself as an independent contractor and file both schedule C and schedule SE (self-employment tax) along with your 1040, depending on what the instructions say. If you get more than something like $400/year in such income, you have to pay self-employment tax which is both the employee's and employer's share of social security and medicare. Of course, you get to deduct half of that from your income taxes due.

Read, for example, the IRS's page for small busineses and self-employed. A good Google search might be self employment tax or the like. Depending on how "good" she's at handling her accounts, she may or may not report the income to the IRS. If she gives you a 1099 form (like a W-2 but for indepedent contractors and the ilk), then you know you'll have to report the income. The best advice I have is try to read through the instruction booklet for 1040 and any schedules it seems you may need. They're all online at the IRS and they're not THAT hard to understand. If in doubt, you may want to talk to a CPA.
posted by skynxnex at 10:20 AM on November 7, 2005

When does helping an associate out, in exchange for cash, become a second job?

Immediately. If it's income for work, it's taxable.

That said, she doesn't have to file a 1099 with the IRS unless the income exceeds $600 in a year. If it doesn't, and she doesn't, there's pretty much no way the IRS would ever now unless maybe you got audited at random (or for unrelated reasons.)

But, of course, failing to disclose your income to the IRS would be bad, and you shouldn't consider it.
posted by Zed_Lopez at 10:22 AM on November 7, 2005

Response by poster: I'm not trying to shirk the IRS - I'm literally clueless on this one and want to be responsible. Which is indeed why I'm thinking about this now and not in February.
posted by sporky at 10:25 AM on November 7, 2005

If you want to be as legal as legal can me all you have to do is keep track of this income and report it as "other income" when the time comes. The letter of the law, as Mitheral says, is that she should give you a 1099 next year if you're over the low-water mark. However you're supposed to report all income whether you're over or under that amount and whether or not she 1099s you.
posted by phearlez at 10:38 AM on November 7, 2005

Read Nolo Press' Working for Yourself for a comprehensive guide to doing everything right.

Regarding deducting your laptop, keep in mind that the IRS can consider unprofitable businesses to be hobbies and un-deduct your business deductions (with penalties and interest.) (The details are confusing; it's based on inexact criteria; I don't claim to understand it.)( Also, deducting something like a laptop complicates your returns for years to come, requiring filing forms about amortized depreciation.)
posted by Zed_Lopez at 1:52 PM on November 7, 2005

The IRS gives you 3 options: either you're an employee, an independent contractor, or it's misc income. The IRS has guidelines that establish which it considers you to be, which in turn will affect how much tax you have to pay on it.
posted by nakedcodemonkey at 1:54 PM on November 7, 2005