Laymans terms for filing W2 and UserTesting earnings

[c_s_00]

Hi - 

Can someone please describe to me in laymans terms exactly what I need to do to file my taxes for 2021?

I work a full-time job and will receive my W-2 here in the next month or so. I also participate in UserTesting and Prolific Academic. Both of these sites do not provide tax documents, however they do pay me through PayPal. 

I need to know how to file all of my earnings (W-2 and the money I have made from these other sites). 

I usually file a 1040 EZ, however I believe I need to now file another document for my money earned through UserTesting and Prolific. Which means, I think I need to now pay for another version of TurboTax filing software?

[TomK100]

You will need to report this income as seif-employment income on a Schedule C.

If you have business expenses to report, you'll need TurboTax Self-Employed or TurboTax Live Self-Employed to file a Schedule C.

If you don't have business expenses to write off and need to file a Schedule C, you can use TurboTax Deluxe, TurboTax Live Deluxe, TurboTax Premier, or TurboTax Live Premier.

Entering Self-Employment Income:

1. Open your return
2. Search for schedule c.   
3. Click on Jump to schedule c.
4. Answer Yes to Did you have any self-employment income or expenses?  (If you've already entered self-employment work and need to enter more, select Add another line of work. )
5. Follow the onscreen instructions

[c_s_00]

@TomK100 

Great thank you! 

A couple more questions:

1.) I purchased $20 worth of Nokia stock in 2020 with Cash App. Do I need to report that? If so, can I do it with TurboTax Deluxe?

2.) Where can I figure out the percentage taxed on my income from UserTesting and Prolific?

[BillM223]

1.) I purchased $20 worth of Nokia stock in 2020 with Cash App. Do I need to report that? If so, can I do it with TurboTax Deluxe?

You do not need to report stock purchases on your tax return, just stock sales.

2.) Where can I figure out the percentage taxed on my income from UserTesting and Prolific?

Since ordinary income is all lumped together before bein taxed, the easiest way to do this is:

1. Write down the amount of tax assessed (line 18 on form 1040) with these two income items included. Also write down your adjusted gross income (line 11 on the 1040).

2. Now remove the two income items from TurboTax and look at line 18 again (this may involve deleting W-2s or 1099-NECs, or, at the least, setting the income boxes on those forms to zero. 

3. Subtract the result of line 2 from line 1 - this is the difference in tax.

4. Divide line 3 by your adjusted gross income from line 1. This is "the percentage taxed on my income from UserTesting and Prolific".

5. THIS IS IMPORTANT - before you file, go back and undo the changes from line 2, that is, undo what you did!

[c_s_00]

@BillM223 @TomK100 

Thank you for the reply. 

I have one more question that I just now thought of. 

Prolific Academic pays me in British Pounds to my PayPal account. I then have PayPal convert it into US dollars so I can deposit the money into my bank account. 

With the exchange rate constantly changing, how should I report my Prolific earnings?

Should I take the full amount in British Pounds and multiply by the current exchange rate, and report that amount on my taxes? 

Or should I add up all of my deposits, that were already converted into US dollars, and report that amount?

[DianeW777]

You must express the amounts you report on your U.S. tax return in U.S. dollars. Therefore, you must translate foreign currency into U.S. dollars if you receive income or pay expenses in a foreign currency. In general, use the exchange rate prevailing (i.e., the spot rate) when you receive, pay or accrue the item. 

The IRS lists a few yearly exchange rates on the IRS Yearly Average Currency Exchange Rates page.  Review this link for further details that may be important for your situation.

[Mtbmike83]

In entering the Schedule C for user testing earnings its asking a lot of questions as if I have legitimately set up a business to do User Testing. I believe the job is more of a independent contractor because it is simply signing up on a website and doing website reviews and you get paid through pay pal. Is there something I'm missing or should I just answer the questions the best I can on the Schedule C. 

[ErnieS0]

Answer the questions as best you can. The IRS considers anyone who is not an employee to be a “business.” It simply means you had no tax taken out of your pay.

There is no option for “independent contractor.” They are considered self-employed and owners of their own businesses because they are responsible for paying their own Social Security and Medicare taxes. These will be added to your return as self-employment tax, which you pay in addition to income tax.

You can deduct any ordinary and necessary business expenses. The more deductions you can find, the less tax you will pay,

For some suggestions see The ultimate guide to tax deductions for the self-employed.

@Mtbmike83