Attention, side hustlers who look to Etsy, Airbnb and other gig-economy sites to make some extra cash: The IRS may start paying a lot closer attention to what you earn.
That's if a new bill from Sen. John Thune, R-S.D., makes it through Congress. Thune's proposal calls for lowering the income threshold at which these sites are required to report their vendors' earnings to the IRS. Currently, they don't have to unless a seller has made at least $20,000 in sales and has received 200 or more payments. At that point, the company would issue a 1099-K form to you and the IRS.
Thune's proposal would lower that income baseline from $20,000 to a mere $1,000, reports Bloomberg — which means sellers who don't currently report all their taxable income on their returns are going to have a much harder time getting out of paying taxes.
So if you've seen your Etsy store take off or suddenly find that your spare room is constantly being booked on Airbnb, it's time to get serious about your record keeping so you're always square with Uncle Sam. Here's how:
Keep a log of all your sales. Sure, you could always look through your account history to see what you've sold, but it's a good idea to keep all your tax records in one place, whether that's via accounting software or a simple spreadsheet with multiple tabs. Make sure to reconcile your transactions if you find differences between your records and the site's history.
Keep receipts of all your expenses. What a site like Etsy reports to the IRS is gross sales. But you're likely spending some of your own money on business-related expenses. So keep track of what you spend on things like shipping or supplies, as they could be tax-deductible.
Keep tabs on your sources of income. If you have multiple side gigs, it's a good idea to know where that money is coming from, because the tax reporting rules could be different. For instance, the money you earn through Airbnb wouldn't be reported until you hit that $20,000 / 200 transactions mark (for now), but if you're freelancing as a contractor for a company, they would generally issue you a 1099 once you make $600 or more from them.
This publication is not intended as legal or tax advice. Taxpayers should seek advice based on their particular circumstances from an independent tax advisor.