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The Side Hustle Tax Trap: How the IRS Views Hobbies and Side Gigs for Tax Purposes
Activities such as baking cakes, starting a blog or offering tour guiding services give people a path to making money with their hobbies. But the IRS wants to know about that income.
You generally have to report all income to the IRS, whether it’s from a job, Social Security, unemployment benefits or something else. Income that you make from a hobby is no exception, though it’s treated differently from income you make via a business. Here’s what you need to know, and how to avoid the side hustle tax trap.
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The IRS expects you to report side hustle income
Side hustle money is typically taxable, regardless of whether it comes from a part-time job, short-term gigs or online marketplaces. The IRS states that you must report gig economy income even if it is not reported on a tax form such as a Form 1099 or W-2. Reporting becomes necessary the moment your self-employment earnings exceed $400 for the year (and may be necessary otherwise) and you may owe self-employment taxes as well.
You may end up with a large (and surprising) tax liability, known as the side hustle tax trap. The few rides you drove for Uber or pet sitting jobs you picked up via Rover will be on the IRS’s radar as taxable events. Setting aside some money can make it easier to pay taxes when they are due, which is why you often need to pay quarterly estimated taxes throughout the year. If you aren’t sure how much to pay, you can speak with a tax professional.
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Hobby vs. business: The difference comes down to profit motive
The IRS sees money that you earn from a hobby differently from money you earn from a business: “The biggest difference between the two is that businesses operate to make a profit while hobbies are for pleasure or recreation,” according to the agency.
The IRS adds that you should ask yourself whether your intent was to make a profit, whether you can expect future profit from the activity, how much you earned, whether you depend on the income, whether operations were adjusted to improve profitability and more.
Money that you earn from a hobby generally isn’t subject to self-employment tax. But you also can’t deduct expenses related to your hobby.
The practical steps that help avoid trouble
If you see yourself making money from a hobby for the long run, it often makes sense to separate personal and side hustle finances. You can start with a separate checking account, but if the business starts to take off, you may want to consider forming a business entity and getting a business bank account.
You should also track your income and expenses diligently, so you do not underreport your income, but also so you can deduct business expenses. You will also have to do your own version of tax withholding since an employer won’t do it for you.
Consulting a tax professional can help you avoid some of the most common mistakes people make when turning their hobbies into profitable side hustles. They can walk you through all of the necessary forms and help you verify which expenses can be deducted.
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AI agents are running hospital records and factory inspections. Enterprise IAM was never built for them.
A doctor in a hospital exam room watches as a medical transcription agent updates electronic health records, prompts prescription options, and surfaces patient history in real time. A computer vision agent on a manufacturing line is running quality control at speeds no human inspector can match. Both generate non-human identities that most enterprises cannot inventory, scope, or revoke at machine speed.That is the structural problem keeping agentic AI stuck in pilots. Not model capability. Not compute. Identity governance.Cisco President Jeetu Patel told VentureBeat at RSAC 2026 that 85% of enterprises are running agent pilots while only 5% have reached production. That 80-point gap is a trust problem. The first questions any CISO will ask: which agents have production access to sensitive systems, and who is accountable when one acts outside its scope? IANS Research found that most businesses still lack role-based access control mature enough for today’s human identities, and agents will make it significantly harder. The 2026 IBM X-Force Threat Intelligence Index reported a 44% increase in attacks exploiting public-facing applications, driven by missing authentication controls and AI-enabled vulnerability discovery.Why the trust gap is architectural, not just a tooling problemMichael Dickman, SVP and GM of Cisco’s Campus Networking business, laid out a trust framework in an exclusive interview with VentureBeat that security and networking leaders rarely hear stated this plainly. Before Cisco, Dickman served as Chief Product Officer at Gigamon and SVP of Product Management at Aruba Networks.Dickman said that the network sees what other telemetry sources miss: actual system-to-system communications rather than inferred activity. “It’s that difference of knowing versus guessing,” he said. “What the network can see are actual data communications … not, I think this system needs to talk to that system, but which systems are actually talking together.” That raw behavioral data, he added, becomes the foundation for cross-domain correlation, and without it, organizations have no reliable way to enforce agent policy at what he called “machine speed.”The trust prerequisite that most AI strategies skipDickman argues that agentic AI breaks a pattern he says defined every prior technology transition: deploy for productivity first, bolt on security later.”I don’t think trust is one of those things where the business productivity comes first, and the security is an afterthought,” Dickman told VentureBeat. “Trust actually is one of the key requirements. Just table stakes from the beginning.”Observing data and recommending decisions carries consequences that stay contained. Execution changes everything. When agents autonomously update patient records, adjust network configurations, or process financial transactions, the blast radius of a compromised identity expands dramatically.”Now more than ever, it’s that question of who has the right to do what,” Dickman said. “The who is now much more complicated because you have the potential in our reality of these autonomous agents.”Dickman breaks the trust problem into four conditions. The first is secure delegation, which starts by defining what an agent is permitted to do and maintaining a clear chain of human accountability. The second is cultural readiness; he pointed to alert fatigue as a case study. The traditional fix, Dickman noted, was to aggregate alerts, so analysts see fewer items. With agents capable of evaluating every alert, that logic changes entirely.”It is now possible for an agent to go through all alerts,” Dickman said. “You can actually start to think about different workflows in a different way. And then how does that affect the culture of the work, which is amazing.”The third is token economics: Every agent’s action carries a real computational cost. Dickman sees hybrid architectures as the answer, where agentic AI handles reasoning while traditional deterministic tools execute actions. The fourth is human judgment. For example, his team used an AI tool to draft a product requirements document. The agent produced 60 pages of repetitive filler that immediately provided how technically responsive the architecture was, yet showed signs of needing extensive fine-tuning to make the output relevant. “There’s no substitute for the human judgment and the talent that’s needed to be dextrous with AI,” he said.What the network sees that endpoints missMost enterprise data today is proprietary, internal, and fragmented across observability tools, application platforms, and security stacks. Each domain team builds its own view. None sees the full picture.”It’s that difference of knowing versus guessing,” Dickman said. “What the network can see are actual data communications. Not ‘I think this system needs to talk to that system,’ but which systems are actually talking together.”That telemetry grows more valuable as IoT and physical AI proliferate. Computer vision agents analyzing shopper behavior and running factory-floor quality control generate highly sensitive data that demands precise access controls.”All of those things require that trust that we started with, because this is highly sensitive data around like who’s doing what in the shop or what’s happening on the factory floor,” Dickman said.Why siloed agent data misses the signal”It’s not only aggregation, but actually the creation of knowledge from the network,” Dickman said. “There are these new insights you can get when you see the real data communications. And so now it becomes what do we do first versus second versus third?”That last question reveals where Dickman’s focus lands: the strategic challenge is sequencing, not capability.”The real power comes from the cross-domain views. The real power comes from correlation,” Dickman said. “Versus just aggregation and deduplication of alerts, which is good, but it’s a little bit basic.”This is where he sees the most common pitfall. Team A builds Agent A on top of Data A. Team B builds Agent B on top of Data B. Each silo produces incrementally useful automation. The cross-domain insight never materializes.Independent practitioners validate the pattern. Kayne McGladrey, an IEEE senior member, told VentureBeat that organizations are defaulting to cloning human user profiles for agents, and permission sprawl starts on day one. Carter Rees, VP of AI at Reputation, identified the structural reason. “A significant vulnerability in enterprise AI is broken access control, where the flat authorization plane of an LLM fails to respect user permissions,” Rees told VentureBeat. Etay Maor, VP of Threat Intelligence at Cato Networks, reached the same conclusion from the adversarial side. “We need an HR view of agents,” Maor told VentureBeat at RSAC 2026. “Onboarding, monitoring, offboarding.”Agentic AI trust gap assessmentUse this matrix to evaluate any platform or combination of platforms against the five trust gaps Dickman identified. Note that the enforcement approaches in the right column reflect Cisco’s framework.Trust gapCurrent control failureWhat network-layer enforcement changesRecommended actionAgent identity governanceIAM built for human users cannot inventory, scope, or revoke agent identities at machine speedAgentic IAM registers each agent with defined permissions, an accountable human owner, and a policy-governed access scopeAudit every agent identity in production. Assign a human owner. Define permitted actions before expanding the scopeBlast radius containmentHost-based agents and perimeter controls can be bypassed; flat segments give compromised agents lateral movementMicrosegmentation enforces least-privileged access at the network layer, limiting blast radius independent of host-level controlsImplement microsegmentation for every agent-accessible system. Start with the highest-sensitivity data (PHI, financial records)Cross-domain visibilitySiloed observability tools create fragmented views; Team A’s agent data never correlates with Team B’s security telemetryNetwork telemetry captures actual system-to-system communications, feeding a unified data fabric for cross-domain correlationUnify network, security, and application telemetry into a shared data fabric before deploying production agentsGovernance-to-enforcement pipelineNo formal process connecting business intent to agent policy to network enforcementPolicy-to-enforcement pipeline translates governance decisions into machine-speed network rulesEstablish a formal pipeline from business-intent definition to automated network policy enforcementCultural and workflow readinessOrganizations automate existing workflows rather than redesigning for agent-scale processingNetwork-generated behavioral data reveals actual usage patterns, informing workflow redesignRun a 30-day telemetry capture before designing agent workflows. Build around observed data, not assumptionsA broken ankle and a microsegmentation lessonDickman grounded his framework in a scenario from his own life. A family member recently broke an ankle, which put him in a hospital exam room watching a medical transcription agent update the EHR, prompt prescription options, and surface patient history in real time. The doctor approved each decision, but the agent handled tasks that previously required manual entry across multiple systems.The security implications hit differently when it is a loved one’s records on the screen.”I would call it do governance slowly. But do the enforcement and implementation rapidly,” he said. “It must be done in machine speed.”It starts with agentic IAM, where each agent is registered with defined permitted actions and a human accountable for its behavior.”Here’s my set of agents that I’ve built. Here are the agents. By the way, here’s a human who’s accountable for those agents,” Dickman said. “So if something goes wrong, there’s a person to talk to.”That identity layer feeds microsegmentation — a network-enforced boundary Dickman says enforces least-privileged access and limits blast radius.”Microsegmentation guarantees that least-privileged access,” Dickman said. “You’re not relying on a bunch of host agents, which can be bypassed or have other issues.”If the governance model works for a medical transcription agent handling patient records in an emergency department, it scales to less sensitive enterprise use cases.Five priorities before agents reach production1. Force cross-functional alignment now. Define what the organization expects from agentic AI across line-of-business, IT, and security leadership. Dickman sees the human coordination layer moving more slowly than the technology. That gap is the bottleneck.2. Get IAM and PAM governance production-ready for agents. Dickman called out identity and access management and privileged access management specifically as not mature enough for agentic workloads today. Solidify the governance before scaling the agents. “That becomes the unlock of trust,” he said. “Because when the technology platform is ready, you then need the right governance and policy on top of that.”3. Adopt a platform approach to networking infrastructure. A platform strategy enables data sharing across domains in ways fragmented point solutions cannot. That shared foundation is what makes the cross-domain correlation in the trust gap assessment above operationally real.4. Design hybrid architectures from the start. Agentic AI handles reasoning and planning. Traditional deterministic tools execute the actions. Dickman sees this combination as the answer to token economics: it delivers the intelligence of foundation models with the efficiency and predictability of conventional software. Do not build pure-agent systems when hybrid systems cost less and fail more predictably.5. Make the first use cases bulletproof on trust. Pick two or three high-value use cases and build them with role-based access control, privileged access management, and microsegmentation from day one. Even modest deployments delivered with best practices intact build the organizational confidence that accelerates everything after.”You can guarantee that trust to the organization, and that will unleash the speed,” Dickman said.That is the structural insight running through every section of this conversation. The 85% of enterprises stuck in pilot mode are not waiting for better models. They are waiting for the identity governance, the cross-domain visibility, and the policy enforcement infrastructure that makes production deployment defensible. Whether they build on Cisco’s platform or assemble their own, Dickman’s framework holds: identity governance, cross-domain visibility, policy enforcement. None of those prerequisites is optional.The organizations that satisfy them first will deploy agents at a pace the rest cannot match, because every new agent inherits the trust architecture the first ones required. The ones still debating whether to start will watch that gap widen. Theoretical trust does not ship.
Dutch Bros is quietly becoming an energy drink giant
While many fast food chains are struggling to attract diners, Dutch Bros is seeing explosive growth. In Q1 FY2026, the coffee chain reported a 30% increase in revenues year-over-year. That’s lightyears beyond competitors like Starbucks, which reported a 9% increase in revenue over the same period.“Our focus on speed to market with best-in-class innovation, a hyper-customizable menu, and unmatched customer service play a critical role in delighting customers and building an everyday routine,” Dutch Bros CEO Christine Barone told investors during the company’s most recent earnings call. “It’s clear we are poised to continue shaping and commanding a leadership position in the large and growing beverage category.” While Dutch Bros ever-expanding menu and top-notch customer service certainly play a big role in the company’s outsized success, its biggest advantage has little to do with coffee.Dutch Bros biggest sellers may not be coffeeDutch Bros may have started as a small coffee cart, but in recent years, the drive-thru chain has shifted its offerings to include more energy drinks.In 2012, the company launched an exclusive, proprietary energy drink called Rebel. With about 80mg of caffeine per serving, the canned beverages could be purchased straight up or mixed with a variety of syrups for a bespoke pick-me-up.“After hours of testing and tasting, we landed on a flavor profile that beats every other energy drink on the market, perfect for both our infused energy drink recipes and, most importantly, our fans’ enjoyment,” Dutch Bros co-founder Travis Boersma said in a statement at the time. Rebel drinks have proven so popular over the last 14 years that the company launched a follow-up in May 2026. The new Myst Energy Refreshers are a little lighter in caffeine, but their inclusion of functional ingredients (electrolytes and antioxidants) and fewer calories has already established them as a popular coffee alternative. The drinks are also as endlessly customizable as Rebels.With Rebel decades-long success and a strong launch for Myst, Barone says Dutch Bros has “never been stronger in the energy category.”“If you look at what we’re doing, it’s actually quite different than what else is out there,” she told investors on the company’s Q1 FY2026 earnings call. “We are the category creator of customized energy.”“What we are doing is quite different, having it blended, having it iced, the number of different flavor combinations,” she continued. “We actually see, particularly within energy, that customers are actually building their own beverages. That importance of customization and being able to customize with speed is incredibly important in that market. We feel really, really great about where we’re sitting on the energy market.”
Dutch Bros pivot to energy drinks has captured Gen Z’s changing caffeine preferences and affinity for “little treat” culture. Getty Images
Dutch Bros has tapped into Gen Z’s “little treat” cultureWhat Dutch Bros has done with Rebel and Myst is establish a clear foothold in a rapidly expanding energy market.In 2025, the global energy drink market was estimated to be $85.25 billion. By 2033, it is expected to top $158.53 billion, with a CAGR of 8.1%, according to Grand View Research.Younger consumers, between the ages of 18 and 34, are the largest drivers behind the growth of the market. More than two in five Gen Zers regularly drink energy drinks, compared to just 13% of millennials and 7% of Gen Xers, according to Circana. With more disposable income than any generation before them, it’s important that quick service chains like Dutch Bros find a way to attract those Gen Z diners. To that end, Dutch Bros has done two major things right when it comes to their generationally-appealing energy drinks — given customers complete customization control and priced them appropriately.More retail:Kroger adds exclusive new Coca-Cola rival sodaCracker Barrel brings back beloved ’90s menu itemEtsy is betting on old-school methods to drive salesSome 38% of fast food diners value the ability to customize fast food menu items, according to data from YouGov. The feature ranks fourth behind value meals, clean dining areas, and daily/weekly specials.Both Myst and Rebel-based drinks can be fully customized. There are currently upwards of 75 “standard” Myst and Rebel recipes on Dutch Bros menu. But customers are free to mix and match flavors and add-ins to their hearts’ content, making the true number of options nearly limitless. The price point for Myst and Rebel beverages has also played a key role in their success. Dutch Bros has positioned the drinks as “little treats,” something nearly a quarter of consumers (73%) told Circana are important to their quality of life.Large versions of the standard recipes never exceed $7, and smalls dip as low as $3.50, putting them right in the $5 range that Circana has identified as the median for a daily “little treat” spend.With the success of its energy drink lines, Dutch Bros may represent where the broader beverage industry is heading: less traditional coffee culture, more functional, personalized energy consumption.Dutch Bros Summer 2026 MenuThis season, Dutch Bros released a number of new tropical flavored Myst & Rebel recipes to beat the heat, including:Passion Water MystCherry Lime MystFirestorm MystTropical MystOG Gummy Bear MystStrawberry Colada Rebel
Source: Dutch Bros
Related: KFC launches wallet-friendly family dinner menu
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Why Georgia delivers big tax breaks for retirees
Georgia continues to position itself as a retirement-friendly state with a range of tax breaks for older adults, according to Grace Zhu, senior manager at RSM in Atlanta and a member of the American Institute of CPAs PFP Champions Task Force.In an interview, Zhu explained how Georgia treats Social Security income, retirement account withdrawals, military pensions, property taxes and estate planning. She also detailed recent changes under the Georgia Economic Growth and Tax Relief Act.Below is a transcript of the interview with Grace Zhu, edited for brevity and clarity.Georgia’s flat income tax and recent tax changesRobert Powell: Let’s start with the personal income tax situation for retirees in Georgia. What do folks need to know?Grace Zhu: Georgia is a flat-tax system. It starts from federal adjusted gross income and then applies adjustments, exemptions and standard deductions.Georgia recently passed House Bill 463, also known as the Georgia Economic Growth and Tax Relief Act. It lowered the tax rate from 5.19% in 2025 to 4.99% in 2026. It also allows additional annual reductions until the rate eventually reaches 3.99%.The law increased the standard deduction to $15,000 for single filers and $30,000 for married couples filing jointly. It also increased the dependent exemption to $5,000 per dependent.Georgia also partially conforms with federal provisions related to tip income and overtime pay exclusions.Georgia offers generous 529 plan deductions. Grandparents contributing to a grandchild’s 529 plan may qualify for deductions of up to $4,000 per beneficiary for single filers and $8,000 per beneficiary for married couples filing jointly.Unlike many states, Georgia allows contributions made by the tax filing deadline to count toward the prior tax year. Georgia also conforms with federal rules allowing up to $10,000 in 529 distributions for K-12 education and certain 529-to-Roth IRA rollovers if conditions are met.How Georgia taxes Social Security and investmentsRobert Powell: Many retirees have Social Security income. How is that taxed, if at all?Grace Zhu: Georgia does not tax Social Security income. It’s tax-free.Robert Powell: And if you’re an investor with capital gains, interest income or dividends, how is that taxed?Grace Zhu: Georgia uses a flat tax rate, so there’s no special tax rate for investment income. It’s taxed at 4.99%.Georgia does not tax U.S. government interest income or Georgia tax-exempt bond income. Capital gains are taxed at the same flat rate.Georgia also conforms with the federal exclusion on the sale of a primary residence — $250,000 for single filers and up to $500,000 for married couples filing jointly.For nonresidents selling Georgia real estate, there may be withholding requirements.Key Takeaways
Georgia does not tax Social Security income
Retirees age 65 and older may exclude up to $65,000 in retirement income per person
Military retirees receive expanded deductions beginning in 2026
Many counties offer property tax breaks tied to age and income
Georgia has no estate tax, inheritance tax or gift tax
Source: Grace Zhu, RSM
Retirement account withdrawals and military pensionsRobert Powell: Many retirees may be taking distributions from IRAs, 401(k)s or 403(b)s. What do they need to know?Grace Zhu: Georgia does tax retirement account withdrawals. But Georgia allows retirement income exclusions for seniors.For seniors age 65 and older, there’s a $65,000 retirement income deduction per person. For seniors ages 62 to 64, the deduction is $35,000 per person.Robert Powell: What about military veterans who may be receiving pensions?Grace Zhu: Beginning in 2026, military retirees can receive a $65,000 military retirement income deduction regardless of age.Before 2026, the deduction was lower and depended on age and earned income thresholds. The new law simplifies that and expands the benefit.Sales taxes and property tax breaks for retireesRobert Powell: Another tax retirees might worry about is the state sales tax.Grace Zhu: Georgia has a 4% statewide sales tax, plus local sales taxes. Combined rates generally range from 6% to 9%.Some counties have lower combined rates. Atlanta’s sales tax is 8.9%.Food purchased for off-premises consumption is exempt from the 4% state sales tax. In some counties, that can significantly reduce the tax paid on groceries.Robert Powell: What about property taxes?Grace Zhu: Property taxes are assessed at 40% of fair market value, and homestead exemptions vary by locality.For retirees age 62 and older, many jurisdictions exempt the school portion of property taxes. For those age 65 and older, there may also be additional exemptions depending on income levels.Social Security and retirement income are excluded from some income calculations used to determine eligibility.Robert Powell: In some places, the school portion of property taxes can make up more than half the bill, so that can be a meaningful tax break.Grace Zhu: In my county, the school portion is about 62% of the property tax bill.Estate taxes and why retirees consider GeorgiaRobert Powell: What about estate taxes, inheritance taxes and gift taxes?Grace Zhu: Georgia does not have an estate tax, inheritance tax or gift tax. That makes it attractive for retirees.Robert Powell: And for people considering moving to Georgia in retirement, it’s probably wise to work with a financial professional to understand the full tax picture.Grace Zhu: Absolutely. People should evaluate their own financial situation carefully.Georgia not only offers generous tax benefits for retirees, but it also has mild winters, a strong economy and outdoor recreation opportunities. It’s a great place to live.Robert Powell: Grace, thank you for sharing your knowledge with us.Grace Zhu: My pleasure. Thank you.
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