Side Hustle Taxes: When Do You Need to File Schedule C?

A side hustle can be tutoring, selling online, driving, freelance design or anything else that earns money outside your job. The tax rules are the same as for any business, but the first year often brings surprises.

What is Schedule C

Schedule C, Profit or Loss From Business, is the form where sole proprietors report income and expenses. The net profit from Schedule C flows to your Form 1040 and to Schedule SE, which calculates self-employment tax.

When you need to file it

You generally need Schedule C if you operated a business as a sole proprietor, or as a single-member LLC treated as a sole proprietorship, and had income from it. You must file a return and pay self-employment tax if your net earnings from self-employment are $400 or more. Even with less, you may need to report the income, depending on your other income.

Forms you may receive

Form	What it reports
1099-NEC	Payments from a client for services, with a reporting threshold that has changed for payments made in recent years
1099-K	Payments processed by a payment app or marketplace, subject to a threshold
1099-MISC	Certain other payments, such as rents or prizes

Forms are a reporting tool, not the trigger for tax. You owe tax on all business income whether or not a form arrives.

What you can deduct

Ordinary and necessary business expenses reduce your profit. Typical examples include software, supplies, a home office, mileage, website costs and professional fees. See our guide to deductions freelancers commonly miss for a full list.

Hobby or business

The IRS asks whether you run the activity to make a profit. If you do, it is a business and you report on Schedule C. If it is more of a hobby, the income is still taxable but you generally cannot deduct the expenses.

Side hustle and a W-2 job

Your paycheck withholding does not cover side income. You have two ways to avoid a surprise:

Increase your withholding. Submit a new Form W-4 to your employer and request an extra amount per paycheck.
Make estimated payments. Pay quarterly using Form 1040-ES.

Because side income stacks on top of your wages, it is usually taxed at your highest bracket plus 15.3% self-employment tax on the profit.

An example

Suppose you are a single filer who earns $55,000 at a job and $9,000 on the side with $1,500 of expenses, and you take the standard deduction.

Item	Amount
Side hustle net profit	$7,500
Self-employment tax (about 14.1%)	About $1,060
Income tax on side profit at 12%	About $900, before deductions
Total tax on the side income	About $1,960, or roughly 26%

The actual figures depend on deductions and your bracket, but it shows why many beginners set aside 25% to 30%.

State taxes

Most states with an income tax also tax side income, and some have local taxes, licenses or sales tax on certain sales. Check your state.

How to set up

Keep a separate account for the side business.
Track income and expenses monthly.
Set aside a percentage of every payment.
File Schedule C and Schedule SE with your return.

Common mistakes

Assuming side income under a certain amount is not taxable.
Mixing personal and business spending.
Underestimating the self-employment tax.
Deducting hobby expenses incorrectly.

Frequently asked questions

Do I need a business license?

It depends on your city, county and type of activity. See our guide to business setup.

Can I file Schedule C if I lost money?

Yes. Report the loss, subject to the hobby rules, and keep records to support it.