Navigating Tax Liabilities: Combining or Separating Income from Regular Jobs and Side Hustles

When it comes to separating or combining your income from your regular full-time job and your side hustle, the decision can significantly impact your tax liability. The answer to whether your reselling side hustle income (mainly junk from home, including items bought and flipped) will be combined with your regular full-time job income or if they will be treated as separate tax liabilities, is not straightforward. It hinges on several factors.

Understanding Tax Combined and Separated Strategies

The decision to combine or separate your income for tax purposes depends on your specific situation and actions. If you are selling articles through your side hustle, the payment method and the nature of the items you sell can influence how your income is classified.

Combining Income: In most cases, all your income is combined, and the total is used to determine your tax liability. This means that both the income from your regular job and the income from your side hustle will be included in your overall income. However, it's important to note that the sale of personal property is generally not considered income unless it is sold for more than the cost of acquiring it.

Separating Income: On the other hand, you can choose to report your income separately if you follow specific guidelines and demonstrate a clear separation of your side hustle from your regular job. This approach can help you avoid being taxed on the full combined income. The separation needs to be clearly defined and maintained, which can be challenging.

Employer Provided Forms and Tax Eligibility

Most often, your employer will provide a W-2 form that includes all your earnings throughout the year. However, the extent to which your side hustle income is combined with your regular job income can depend on the specific circumstances outlined in the form and by your employer.

For those who are self-employed, there are additional considerations. Depending on the amount of income you earn, you may be subject to the 15.3% FICA (Federal Insurance Contributions Act) payroll tax, as both halves of the tax (employer and employee) need to be paid. This is a significant factor to consider when managing your income and tax obligations.

In some cases, if your business structure can be changed to an S-Corporation, you may be able to minimize tax liability. An S-Corporation allows you to pass profits and losses through to your personal tax return, which can reduce your overall tax burden. For more information on different business structures and how to minimize tax liability, click here.

Consulting with Tax Experts

To ensure that you handle your tax liabilities correctly, it often helps to consult with a tax specialist. A professional can provide personalized advice and guidance based on your specific circumstances. Additionally, joining or following resources like 'Everything Taxes' can provide valuable insights and keep you informed on tax-related matters.

Remember, the key to minimizing your tax liability is not just about how much you earn, but how much you keep. By following the right strategies and maintaining proper records, you can effectively manage your tax obligations and keep more of your hard-earned income.

Conclusion

Whether you choose to combine or separate your income for tax purposes is a complex decision that involves several factors, including payment methods, income sources, and business structures. Consulting with a tax specialist can help you make the best choice for your unique situation. Remember, the goal is to keep as much of your income as possible.

Cheers, Raj!