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This past summer, I worked a normal summer job and received a W2 form. However, I have also been tutoring two fellow students at the university I attend. They have been paying me "informally", eg they simply gave me dollar bills at the end of our tutoring sessions. I've made a total of $458 this way.

My question is: how do I indicate this income when I'm filing my taxes? Form 1040 item 1 is "Wages, salaries, tips, etc. Attach forms W2", which seems inappropriate because I don't have a W2 for this income. The guidebook says:

IF YOU... have additional income, such as business or farm income or loss, unemployment compensation, prize or award money, or gambling winnings.

THEN USE... Schedule 1, Part 1.

Schedule 1, Part 1 has a few items that (to my naive eye) look like they could fit the bill:

Item 1: Taxable refunds, credits, or offsets of state and local income taxes.

Item 3: Business income or (loss). Attach Schedule C.

Item 4: Other gains or (losses). Attach Form 4797.

Item 8: Other income. List type and amount.

Item 8 seems the most promising to me, but for all I know none of these are correct. Where should I indicate the "informal" income from my tutoring sessions? Do I even need to report it?

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    IIUC there is no paper trail from this income; in particular, the people paying you do not have a bill from you and cannot claim their payments as deductibles in their own tax declaration. If that is so I assume that most people would not jump through hoops in order to find a way to declare such income. If you feel morally bad about it: Donate to a charity. – Peter - Reinstate Monica Mar 26 at 13:31
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Let’s start with your last question first:

Do I even need to report it?

Yes, you are supposed to report it, as this is considered income. It was not simply a gift, because you did do some work in exchange for the money. Having said that, I will point out that, because it was all in cash, it is unlikely that the IRS would ever find out about it if you did not report it.

Where should I indicate the “informal” income from my tutoring sessions?

You found both of the places where it could go:

  • Schedule 1, Line 3: Business income

  • Schedule 1, Line 8: Other income

Let’s look at the two options.

As business income, you have to fill out a Schedule C (or Schedule C-EZ) for your business. The advantage here is that you get to deduct business expenses. Did you drive to your tutoring sessions? If so, you can deduct an amount for mileage (58 cents per mile in 2019). Did you purchase any books or materials that you used while tutoring? If so, those are deductible.

A disadvantage to a business is that you have to pay self-employment (SE) tax. However, there is no SE tax on income amounts below $400, so if you can deduct $58 worth of expenses, there will be no SE tax.

The other option is to consider your efforts a hobby and not a business. This is the easy option: No Schedule C, no business expense deductions, no SE tax. You just put $458 on Schedule 1, Line 8, and call it good. You’ll end up paying your regular tax rate on that amount.

In some cases, the IRS will insist that you have a business and require a Schedule C. In other cases, the IRS will deem that you do not have a business and will disallow your business expense deductions. The IRS has listed nine criteria that they use to determine what is a business and what is not. At this level of income, it probably doesn’t matter. But if you plan on continuing or expanding your tutoring, it should probably be considered a business.

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    Just as a practical matter, I think the IRS is highly unlikely to do anything about $458. – jamesqf Mar 24 at 17:03
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    Note that if you do consider it a business, it probably qualifies for the "qualified business income" deduction, letting you deduct 20% of it after taking the standard deduction or itemized deductions (so it's a deduction you can take even if you opt for standard deduction). But as others have said, the amount is such that it's not really going to matter what you do. – R.. GitHub STOP HELPING ICE Mar 24 at 18:10
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    @JohnGordon No, a gift received is not considered taxable income. There is a gift tax, but this is imposed (in some cases) on the giver, not the recipient. – Ben Miller - Remember Monica Mar 25 at 14:54
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    You're incorrect about "nine criteria". There is an answer with two paragraphs and also nine criteria, but you seem to negate the two paragraphs. The ruling language is "take into account all facts and circumstances with respect to the activity", and a lot of that involves the nature of the activity (is it ordinarily a hobby vs business). The nine bullets are not controlling, they are just some examples of facts and circumstances that are considered. – Harper - Reinstate Monica Mar 25 at 23:23
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    Sure, you disclaimed... but "the IRS has listed nine options" is not an accurate telling of what that page says. It sends people off to count the nine, which will result in a misread of that page. – Harper - Reinstate Monica Mar 25 at 23:43
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It is not a smorgasboard. Your facts and circumstances decide which you must do. Based on yours:

Pretend you got a 1099-MISC for that income. File Schedule C.

And you report it exactly the same as if you had gotten a 1099-MISC. This means you must go through the rigmarole of filing Schedule C, which will seem weird because you don't have a sole proprietorship. Actually, you do. You become a "sole proprietorship" (or "partnership") by default, anytime you do business without a more formal structure like an LLC or corporation.

Documentation of this area used to be quite poor, but the emerging gig economy has led IRS to create a site just for that.

Also file Schedule SE.

I tried to classify this as line 1 employee income; can't do it. The barrier is SS/Medicare/SE tax. For the same reason, reporting this on Schedule 1 Line 8 is flat wrong for you. By using Schedule C, the number drops right into the easy short-form Schedule SE, and you're done... and that saves you the eye-burn of even trying to read the long-form Schedule SE.

You need to file Schedule SE because you are just above the reporting threshold for it. If you had made < $433 (really) *, you wouldn't need to file Form SE. You might want to find some business expenses e.g. travel (transit, or IRS's mileage rules), or double-check your numbers.

Paying SE tax isn't all bad. When you retire, your social security benefit is decided by how much money you made while working. This posts as income for that purpose.






Support

From Pub. 525 (IRS's deep-dive guide into what income is):

Sharing/Gig Economy

Generally, if you work in the gig economy or did gig work, you must include all income received from all jobs... See the Instructions for Schedule C (Form 1040 or 1040-SR) and the Instructions for Schedule SE (Form 1040 or 1040-SR).

From Sched. C instructions:

Use Schedule C (Form 1040 or 1040-SR) to report income or (loss) from a business you operated or a profession you practiced as a sole proprietor. An activity qualifies as a business if your primary purpose for engaging in the activity is for income or profit and you are involved in the activity with continuity and regularity.

The only "out" Schedule C gives you is if the activity is "sporadic", then it may not qualify as a business and could be reported on Sched 1 Line 8. But I doubt that applies since you are presumably open to more tutoring business if you can get it. Even if you could argue that, and get that argument to stand up in an audit, I still wouldn't bother -- you still have to deal with Schedule SE; and the Schedule C path is the easier way to do that.

The only other out is "hobby". I hang out with hobbyists who regularly try to "game" the difference between hobby and business, either to deduct hobby expenses or evade SE tax on work. That trick never works. IRS is wise to it, and will quickly refuse you, alter your return, notify you of penalties and interest, and say "if you disagree, sue us. Here's how."

My friends make the mistake of wrapping themselves up in self-justification. But the fact is, IRS uses the plain-English version of "hobby". From the IRS Small Business FAQ:

A hobby activity is done mainly for recreation or pleasure.

What matters is how a cool outsider sees it. Its it a hobby or business for most people who do it? Is the lion's share of your activity conducted in a hobby manner (i.e. as a passion project)? Sometimes (not here), that's a tough noodle to stick to the wall, and that link has more documentation to help you determine; but never forget the core definition above.

  • Here's a dog that won't hunt: "Tutoring is a lifelong avocation that I only do when I'm paid".

You will not deal with anyone willing to listen to your argument until you sue IRS. Having done this and won, I can tell you it's a waste of time unless you have a strong understanding of Tax code and can coherently argue the law (and present provable facts). I would not want to argue tutoring as hobby.

Given that tutoring for pay is a classic student job... and OP, you give no evidence of tutoring as a passion project... I see any "hobby" claim as undefendable. Hence I don't advise it, and have excluded it from my advice. It might work for other readers if their facts support it, but don't fool yourself.


* Really. $433 not $400. Punch $432 into Schedule SE and see what happens.

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  • You could think of it as 1099-MISC income if you want to, but it’s unnecessary. If you have a business, you need to report all revenue, whether or not it is reported on a 1099-MISC. It is unnecessary for the recipient; it’s presence just ensures that you can’t get away with underreporting. – Ben Miller - Remember Monica Mar 25 at 21:33
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    Also, a student paying a tutor would never file a 1099-MISC, no matter how much he paid the tutor. It’s not required for individuals to file 1099-MISC; only businesses must do this under certain circumstances. – Ben Miller - Remember Monica Mar 25 at 21:39
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    @BenMiller I'll just remove the "by the way", then. I seem to miss the point of your first comment. As far as "hobby", you are mistaking those 9 factors: they are only tiebreakers; they don't override the plain English meaning of "hobby" and "business", nor that job's traditional role. Model railroading is a hobby, and you'd have to very decisicely tick all 9 to say otherwise. OP, tutoring them that can pay is a classic student business. You muddy your answer thinking otherwise. – Harper - Reinstate Monica Mar 25 at 22:57
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    My hobby is answering tax questions online. People can have weird hobbies. – Ben Miller - Remember Monica Mar 25 at 23:14
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    @BenMiller You and me both lol. Anyway I have to admit in fairness, we are trying to answer questions more broadly here for others who might see this Q&A. ; While "hobby" is a very bad fit for OP, it could be of help to others who read this same question. I know a couple of model railroaders who walk that line. – Harper - Reinstate Monica Mar 26 at 0:02
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Ben Miller's answer is good, but for completeness, I will simply note that if any of your students had paid you more than $600, they would be legally required to report that on a 1099-MISC, per IRS rules. Of course, many folks don't do this, especially if the amount is not much above the threshold. But this would definitely make it important to report the income on your own return. Amounts which do not trigger a 1099, as jamesqf observes, are generally not that interesting to the IRS (which is why you never hear of armed agents storming a teenager's informal lawnmowing business).

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  • Thanks for the tip! I may end up tutoring students for longer periods and more hours per week in the future, so this will be good to keep in mind. – MegaWidget Mar 25 at 1:48
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    The 1099-MISC is only filed by your customers when your customers are a business. The students are probably not a business. – mhoran_psprep Mar 25 at 10:20
  • Also, if your customers are required to give you a 1099-MISC, but they don’t, it doesn’t really affect you in any way. You still have the same requirements whether or not you receive a 1099, and you are not responsible for your customers’ failure to report. – Ben Miller - Remember Monica Mar 25 at 14:38
  • I don't think the IRS has armed agents. They have collection agents, and that's enough. They also have lawyers, but you'll never meet one unless you initiate the lawsuit. Then (btdt) they're super easy to deal with compared to most counterparties. They don't have an emotional stake, they just want the law followed. – Harper - Reinstate Monica Mar 25 at 20:33
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    @Harper-ReinstateMonica Yes, they do: en.wikipedia.org/wiki/… – Andy Mar 25 at 23:28

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