Kicking off a side business to earn extra cash? Master these tax tips first

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Covid-19 has spurred people to generate additional streams of income. The extra cash comes with additional responsibilities. What you should know.

OnlyFans, a subscription service that acts as a video platform for influencers, had a 75% month-to-month increase in new creator registrations between March and April – just when the pandemic was taking off.They'll need to account for the money they've been earning and report it on their 2020 income tax return.

"The number one problem when starting a new business or a side business is that you don't understand the tax environment," said Mackey McNeill, CPA and consumer financial education advocate for the American Institute of CPAs. "You take your box of materials to your CPA and they're like, 'You owe $5,000 to the government,'" she said. "That first year out of the box, you are behind and indebted to the government."Regardless of whether you just started your new side business or you've been operating for years, you'll need to report the income on your 2020 tax return.

Some online services, including Uber, OnlyFans, DoorDash and Etsy, will issue you a Form 1099 in January, detailing the money you've earned in the prior year. A copy of this form goes to the IRS as well. Here's the catch: Not all services will give you this information. For instance, in order to receive a Form 1099-K, merchants on Etsy must have made at least $20,000 in sales via Etsy and they must have received at least 200 payments that year.

 

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