Month: October 2026

Whether you’re freelancing, driving for a rideshare service, selling handmade products, or taking on occasional consulting projects, a side hustle can be a great way to earn extra income. But that additional money may also come with tax responsibilities that are easy to overlook.

One of the biggest misconceptions is that income doesn’t need to be reported unless you receive a Form 1099. In reality, the IRS generally requires taxpayers to report taxable income regardless of whether a client, customer, or payment platform sends a tax form. Understanding the rules now can help you avoid unexpected tax bills, penalties, and complications when filing your 2026 tax return.

A Litchfield resident had an online craft business which was turning into a nice side hustle. With the end of the year looming, she was looking ahead to the right way to report these wages.

You Must Report Income Even Without a 1099

If you earn money through self-employment, freelance work, or other business activities, that income is generally taxable. This includes payments received through cash, checks, direct deposits, and payment apps such as Venmo or PayPal. The same applies to money earned from tutoring, pet sitting, landscaping, photography, delivery services, and similar activities.

The important distinction is that receiving a tax form doesn’t determine whether income is taxable. The income itself determines your reporting obligation.

Understanding the 1099 Rules for 2026

Different types of payments may generate different tax forms.

Form 1099-NEC: Businesses generally must issue this form when they pay an independent contractor $2,000 or more for qualifying services during 2026. This threshold increased from $600 under recent federal legislation.

Form 1099-K: Payment processors and online marketplaces generally must issue this form when qualifying payments for goods or services exceed $20,000 and involve more than 200 transactions during the calendar year.

Some platforms may issue forms below these thresholds, and state reporting requirements can differ. Regardless of whether you receive either form, taxable business income must still be reported.

Not Every Payment Is Taxable Income

Receiving money through a payment app doesn’t automatically mean you owe taxes. Personal transactions, such as receiving reimbursement from a friend for dinner, splitting household expenses, or receiving a genuine gift, generally aren’t taxable income. Selling personal belongings also has different tax implications than operating a business. Keeping personal transactions separate from business payments makes tax preparation much easier.

Don’t Overlook Self-Employment Taxes

Many side hustlers focus on federal income tax but forget about self-employment tax. If your net earnings from self-employment are $400 or more, you generally must file Schedule SE and may owe self-employment tax, even if your overall income is relatively low. Self-employment tax covers Social Security and Medicare contributions that are ordinarily shared between employees and employers. The standard combined rate is 15.3%, subject to applicable rules and limits. Because taxes usually aren’t withheld from side hustle payments, setting aside part of your earnings throughout the year can help prevent an unpleasant surprise.

Do You Need to Make Estimated Tax Payments?

If your side hustle generates a profit and you don’t have enough tax withheld from other income, you may need to make quarterly estimated tax payments. Generally, estimated payments are required when you expect to owe at least $1,000 in federal tax after accounting for withholding and refundable credits, unless an exception applies. If you also have a regular job, increasing withholding from your paycheck may be another way to cover taxes on side income.

Keep Business and Personal Finances Separate

Even a small side business benefits from organized financial records. Consider using a separate bank account for business transactions and tracking income and expenses regularly rather than waiting until tax season. If you receive multiple 1099 forms, compare them with your records to avoid accidentally reporting the same income twice. Good bookkeeping also makes it easier to calculate profits, identify legitimate deductions, and determine whether your side hustle is financially worthwhile.

After speaking to Merrimack Tax Associates about her side income, the Litchfield resident now has a better understanding of how to manage her taxes for this additional income.

If you’re planning to purchase a new car, truck, or SUV, there’s a federal tax deduction worth knowing about. A tax law enacted in 2025 introduced a temporary deduction for interest paid on certain new vehicle loans, potentially reducing the cost of financing a qualifying purchase.

The deduction is available for tax years 2025 through 2028 and allows eligible taxpayers to deduct up to $10,000 annually in qualifying auto loan interest. However, not every new vehicle or financing arrangement qualifies.

A Nashua, NH resident was looking to purchase a new vehicle. Before heading to the dealership, he wanted to understand the requirements, income limits, and documentation needed to claim this tax benefit.

How Does the Auto Loan Interest Deduction Work?

Under the new rules, qualifying taxpayers can deduct interest paid on eligible loans used to purchase new vehicles for personal use. The maximum deduction is $10,000 per year, but that doesn’t mean everyone who purchases a new car receives a $10,000 tax break. The deduction applies only to qualifying interest actually paid during the tax year, not the vehicle’s purchase price or the principal portion of monthly loan payments. For example, if you pay $2,400 in eligible auto loan interest during 2026, your potential deduction is $2,400, assuming you meet all other requirements. Because this is a deduction rather than a tax credit, the actual savings depend on your tax situation and marginal tax rate.

Which Vehicles Qualify?

The deduction applies to certain new passenger vehicles purchased for personal use after December 31, 2024.

Eligible vehicles generally must meet these requirements:

• New vehicle: The vehicle must be purchased new, with its original use beginning with the taxpayer.
• Final assembly in the United States: The vehicle must have undergone final assembly in the U.S.
• Vehicle weight: The gross vehicle weight rating must be less than 14,000 pounds.
• Eligible vehicle type: Qualifying vehicles include cars, minivans, vans, SUVs, pickup trucks, and motorcycles.

Both gasoline-powered and electric vehicles may qualify if they meet the requirements.

A vehicle manufactured by an American brand doesn’t automatically qualify. Final assembly location matters, and different models or production runs may be assembled in different countries. You can check the vehicle identification number (VIN) using the National Highway Traffic Safety Administration’s VIN decoder or review the vehicle’s manufacturer information.

What About Used Cars and Leased Vehicles?

Used vehicles do not qualify for this deduction, even if purchased from a dealership. Leased vehicles are also excluded because the deduction applies to interest on qualifying purchase loans, not lease payments. Additionally, the loan must be secured by the vehicle and meet the applicable requirements. Interest on a personal loan that isn’t secured by the vehicle generally doesn’t qualify. Refinancing an eligible original loan may preserve the deduction, but only for interest on the qualifying refinanced balance.

Are There Income Limits?

The deduction begins to phase out for taxpayers whose modified adjusted gross income exceeds:

• $100,000 for single filers and most other filing statuses.
• $200,000 for married couples filing jointly.

The maximum deduction is reduced by $200 for each $1,000, or fraction thereof, that income exceeds the applicable threshold. These limits make it especially important to consider your income before assuming you’ll qualify for the full deduction.

Can You Claim It Without Itemizing?

One particularly useful feature is that eligible taxpayers can claim the auto loan interest deduction even if they take the standard deduction. This means homeowners and renters who don’t itemize may still benefit. However, the deduction is not available to married taxpayers filing separately, and taxpayers must include the required vehicle and loan information when claiming it.

What Records Should You Keep?

If you’re purchasing a qualifying vehicle, save your purchase agreement, financing documents, VIN, and records showing the amount of interest paid. Your lender may provide an annual statement reporting eligible interest. For the 2026 tax year, lenders generally have additional reporting obligations related to qualifying vehicle loan interest. Remember that your entire monthly car payment isn’t deductible. Only the qualifying interest portion counts.

After speaking to the team at Merrimack Tax Associates, the Nashua resident now has a good understanding of how his new vehicle purchase can affect his taxes down the road.