I Only Made $600, Do I Have to Claim It?

I think there is some confusion surrounding the magic number of $600. I hear people say, “Well, I only earned $500 from that company, so I don’t have to claim it on my taxes.”

Usually this person works a regular job, with a regular paycheck . Let’s say they make $20,000 a year.  With that $500 they earned, they actually now made $20,500.

The $600 comes in for the company – the company is not required to send you a 1099-MISC unless you earn over $600.  It’s still on you to be honest and claim that you made this money.  It might be possible to decrease the amount of taxes that you owe, if this money you earned can be treated like a self-proprietor business.

Let’s say you’re a computer technician in your day job.  On the weekends you earn a little extra cash over the year from friends and family, and maybe a few of your friend’s parents.   Let’s just say the amount you earned was $500.  You don’t charge a lot of money, you’re a nice guy and you just want to help people out.

For most of the jobs you were able to log into their computer and do the work, after all.  But for two of the jobs, these were for your best buddy’s Grandma and Grandpa, you actually needed to drive to their home to install some components. Gram and Gramps Smith live 100 miles from you.  You drove to the electronics store first, bought the components needed for Gram and Gramps and drove straight to their home.  You installed the components and went right back home to play Super Mario Kart for the rest of the day. Two weeks later you drove back over to help Gramps set up their new CCTV since Gramps is visually impaired.

Hopefully you wrote down your mileage because right there is $200 you can deduct to lower your net income and reduce your tax liability.  You made $500, but you drove 400 miles.  Right now the IRS allows $0.50 per mile for business miles, so that means you will only need to pay taxes on $300.  You’ll need to claim this on Schedule C – you claim the full amount you made, and you list your deductions. You’ll also be liable for some self employment tax.

Let’s say you’re a blogger, and you made $300 from Google Adsense.  You also earned $300 from the Amazon Affiliate program. Google and Amazon won’t send you a 1099-MISC until you make over $600 but you still need to claim the money earned from each company.  You might be able to deduct some other expenses, like the cost of your website hosting and your domain registration for your blog.  If you bought a theme for your blog, that’s deductible. If you hired someone to set up WordPress for you, that’s deductible.

However, if you just made $500 working with your dad who’s a plumber, and you rode along in his vehicle, you won’t be able to take any deductions.

Your dad can actually claim the $500 he paid to you as a business expense, and he doesn’t have to give you a 1099-MISC since it’s not over $500.  He should pay you with a check so that there is a nice legal papertrail.

Have you ever been confused about the magic $600?  Do you know anyone who has been?  I know Kosmo and his CPA wife have never been confused by it! :-)

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2 comments to I Only Made $600, Do I Have to Claim It?

  • Yeah, legally, you’re still supposed to report the income. It’s just that you’re unlikely to get caught if you don’t, since there isn’t a paper trail.

    The $600 threshold is really for the benefit of the business. Can you imagine the paperwork if a small business had to file a 1099 every time they hired someone to do a small task? You could end up filing 1099s for a bunch of $25 expenses.

    Here’s another way to look at it. Let’s say that you make $60,000 consulting for one big company. Let’s say your neighbor consulted for 120 companies, each of which paid her $500 (also a total of $60,000). Is is reasonable to say that she shouldn’t have to pay taxes on her income, since all the amounts where below $600? Or would you expect her to have (roughly) the same tax liability as you?

    On the topic of business expenses, definitely keep good records of income and expenses. I have a bank account, credit card, Paypal, Amazon account, etc that are in the name of my LLC. Everything flowing through those accounts are business related – making it very easy to keep them separate from personal expenses. (Amazon’s probably wondering why that account has never purchased anything … it’s because it’s just a container for my Amazon Associates account.)

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  • [...] Accountability muses about the implications of the $600 threshold for sending [...]

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