I'm curious for anyone willing to help me out. Do I need to file taxes once I've reached $600 total, or for each MSC that I've reached $600 with? For example, if I am registered with 7 MSCs, and I make $100 from each one individually, should I be holding back money for taxes? I hope what I'm asking makes sense. I know this is more of a hobby with the mileage and the small amount I actually make, but I don't want to be stuck with an IRS debt come April of next year. Thanks for your help!

You need to pay taxes on all the fees that you earn, regardless of whether they reach $600 or not. But you will also be able to deduct expenses. Keeping track of the expenses, like car, really offsets the income. After car and other expenses, I don't end up owing a lot.

Edited 1 time(s). Last edit at 08/01/2015 02:09PM by Jay C.

Thank you, Jay C. So are you saying I'm going to get a 1099 from each individual MSC, even if all one of them paid me was $20, for example?

No, you will only get a 1099 from companies who pay you $600 or more. If one paid you $20, you would not receive a 1099. It would be your responsibility to maintain a record of the fees you earn, and the applicable expenses, and report them.

Ok, I appreciate your input on this. Are reimbursements considered fees? For example, I get reimbursed $35 for a meal, and paid $5 to complete the shop. Does that count as $40 in income with $35 in expense, or just $5 income?

Just the $5 is income, but you DO need to keep a record of reimbursements as well as fees for each MSC that you work for. The reason is that some MSCs will generate a 1099 once total payments (including nontaxable reimbursements) reach $600. So, in order to avoid taxation on the reimbursements, you will need to know to "back them out" by claiming the costs for those meals/hotel stays, etc., as expenses incurred on Schedule C. Don't count on the MSCs to do all of the "keeping track." That's your responsibility as a small business owner. Fortunately, this is quite simple. Good on you to start thinking about these things early on!

For MSCs which use PayPal, you will not get a 1099 from the MSC even if you have over $600 in fees. The responsibility passes to PayPal, and they aggregate all payments to you together. They will not send you a 1099 unless the aggregated total exceeds $20,000 and 200 transactions (that is the IRS requirement; [www.paypal-community.com]). I used the "aggregate" intentionally since PayPal has no way to distinguish fees from reimbursements, so you have to report all revenue on Schedule C and then all expenses which are reimbursed are listed elsewhere on Schedule C. This includes the cost of items which you were required to purchase. Some MSCs aggregate all payments and report that number on a 1099 form. They should only be reporting fees, but some aggregate. The there is the case of MSCs with flat fees and required purchases, so again you have to keep track of it yourself.

I personally report all revenue on Schedule C. Then I list all required expenses on Schedule C. That way everything is listed and I don't have to worry about whether the MSC aggregated or not, whether the payments went through PayPal or not.

A previous response mentioned something critical. You are required to report all income / revenue regardless of the amount from each source. $20 gets reported if that is all you get from a given MSC in 2015. $610 shown on a 1099 gets reported. $13,256 remitted to you through PayPal gets reported even though PayPal will not send you a 1099.

I forgot to mention something to the OP. Expenses associated with a hobby are never deductible on Schedule C. It is CRITICAL that you always remember that you are running a small business with the intent of making a profit.

Oh ok. Good to know. Thank you!!

I would like to add that all expenses include a part of the payment of your laptop/computer/tablet, cell phone and all other items are deductible. The ones I just listed are deducted as a % of the value. For example, if the laptop costs $700. and it is to last 7 years then you can deduct 100 dollars if you use it 100% of the time for MS. But, if you use the laptop for MS 50% of the time then you can deduct $50.00. You can do the same with electricity, phone, etc. If you want to use an office then it is tricky! The IRS is very strict about office rules. You MUST not have any other furniture in your office such as a bed or a living room. Therefore, if you have a corner of a room as your office, no good. You must have a special room with nothing but real office items in it. I would get a book about schedule C deductions or go to IRS.gov and read about it.