Yes, you generally must report all income from a side hustle to the IRS, regardless of the amount, even if you do not receive a 1099-K, 1099-MISC, or W-2. If your net earnings from self-employment are $400 or more, you are required to file a tax return and pay self-employment taxes.
You must file a tax return if you have net earnings from self-employment of $400 or more from gig work, even if it's a side job, part-time or temporary.
For more on what you need to know about Form 1099-K, click here. Failure to report earned income is a form of tax fraud. If you don't report your side hustle and you are audited, you could incur a failure-to-pay penalty, Hearn says.
Yes, if you have net earnings of $400 or more from self-employment, you must file a federal tax return to pay self-employment tax (Social Security and Medicare), even if your total income is less than $5,000. You'd file a return (Form 1040) to report this income and pay the tax via Schedule SE and likely estimated quarterly taxes, but you still need to file if your other income (like W-2 wages) meets other standard IRS filing thresholds (e.g., $14,600 for single filers in 2025).
No, the IRS doesn't catch every instance of unreported income, but their advanced data-matching systems catch most discrepancies involving third-party reporting (like W-2s, 1099s for freelance/interest/dividends) through automated checks, leading to CP2000 notices and potential penalties if missed; however, cash income, crypto, or lifestyle mismatches can also trigger scrutiny, though it's less certain than reported income, and high-income non-filers are a current focus.
The biggest tax mistakes people make include filing late, math errors, incorrect personal info (like Social Security numbers), forgetting deductions/credits (like EITC), misreporting income, not signing forms, and making errors with bank details for direct deposit, all leading to delays, penalties, or missed savings, with using tax software or professionals helping avoid these common pitfalls.
There's no legal requirement in any state to register your side hustle as an LLC. Many operate as sole proprietors indefinitely, regardless of income. Others choose to become a business when they reach a certain income threshold.
If your panicking about going to prison, those numbers should provide some perspective. The overwhelming majority of people with unreported income never face criminal charges. They face civil penalties, audits, payment plans – but not prison.
Depending on your side hustle, you'll likely need to fill out a Schedule C (Profit or Loss from Business) to report earnings or losses from your side gig. Include the income from Forms 1099-NEC and 1099-K with all other income for the side hustle on your Schedule C.
Hobby income is taxable, but you cannot deduct any expenses related to the hobby. On the other hand, business income is taxable, and you can deduct business expenses related to the business activity, such as supplies, equipment, and advertising.
In this article
Owning a small business such as auto dealership, a restaurant, a beauty salon, a car service or cannabis dispensary is an IRS red flag, as they typically have many cash transactions. Red flags are also raised on outliers – businesses with margins that are too low or too high.
A Reminder of Seven Things the IRS Will Never Do:
The IRS can review your past three tax returns in audits — and up to six years if major errors are found. Audit odds are low, but the IRS uses automated programs to identify issues. Common red flags include unreported income and excessive deductions. High earners and digital currency users may face extra scrutiny.
Avoid These Common Tax Mistakes
At a glance
For 2025, the minimum income for Single filing status for filers under age 65 is $15,750 . If your income is below that threshold, you generally do not need to file a federal tax return.