Had a side job in 2021? Here are 3 things you need to know before you file your taxes. – USA TODAY

Worked a side gig last year? Here's how to tackle your tax return.

Maurie Backman| The Motley Fool

How to tell when a side hustle isn't worth your time

If youre bored with your day job or maybe just always dreamed of owning a card making business, a side hustle could seem like a good decision.

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Taking on a side hustle is a great way to improve your financial picture. The money you earn from that second gig could make it possible to pad your savings, work your way out of debt, or simply have more flexibility when it comes to higher-than-average bills. Unfortunately, that's something a lot of us are grappling with now thanks to rampant inflation).

But when it comes to filing taxes, working a side hustle could add a layer of complexity to the mix. If this year's tax return is your first to include side hustle earnings, here are some key points to keep in mind.

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Usually, when you earn $600 or more on a freelance basis from the same client, that company will send you a 1099 form summarizing that income. But you may not get a 1099 in every situation. The absence of that form doesn't mean you're off the hook in terms of reporting your income to the IRS.

Failing to report income could have serious consequences, like penalties that cost you money. A good bet is to carefully look through your bank statements and make sure you're reporting every dollar you took in on the side.

YES, SIDE HUSTLE MONEY IS TAXABLE: Here's what to know if you made $600 or more in 2021.

If you incurred expenses in the course of working your side hustle, you're allowed to deduct them on your taxes provided you have receipts to back up your claims. Imagine you did work as a freelance photographer on the side in 2021. You may have spent money on equipment and driving back and forth to different places for photo shoots. Those are legitimate expenses you can deduct to minimize your tax liability for that gig.

If you earn a substantial amount of money from a side hustle that pays you on a freelance basis, it's a good idea to make estimated quarterly payments on your earnings during the year. If you don't, you could get stuck with a penalty for paying too little tax. If 2021 was your first year working a side hustle and you paid no tax on that extra money, you may have a penalty on your hands.

TAXES 2022: How do you get an extension? Do you still have to pay now?

That said, you won't be penalized if you owe the IRS less than $1,000 in taxes as a result of your underpayment. So let's say that after accounting for your side hustle income and deductions, you owe the IRS $500 for 2021. You'll still need to pay that tax debt but you shouldn't be slapped with penalties since it's under that $1,000 threshold.

A side hustle could be a great source of added income that helps you more easily cover your bills and meet different financial goals. But it's important to understand how that gig might affect your taxes and take steps to minimize your liability come tax season.

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Had a side job in 2021? Here are 3 things you need to know before you file your taxes. - USA TODAY