Did you sell your old cell phone? Babysit your neighbor’s kids? And what if someone paid you for it? It may seem like an innocent pastime, but the IRS may have a different opinion. When can you legally make money on the side without taxes and when is it a business that requires a trade? In this article, we’ll clearly explain what casual income is, what the limit is, and what to watch out for so that innocent help doesn’t become a problem.
Nowadays, it’s no exception that people are looking for ways to make a little extra money on the side. Maybe you’ve had a one-off opportunity to babysit something, fix your neighbour’s computer or sell an old phone over the internet. And maybe you thought at the time: “Do I have to pay tax on this? And what if I only do it a few times a year, do I need a business license?”
The answers to these questions are hidden in the Income Tax Act. In some cases, it allows you to take advantage of so-called tax-free income – income that you do not have to declare on your tax return and, more importantly, you do not pay any taxes on it.
Occasional income refers to one-off earnings that you earn outside your job, business or other regular gainful activity. Typically, this includes activities such as helping a neighbour move for a fee, babysitting, one-off repairs to someone else’s computer, selling old household goods, renting a car if you don’t do this on a regular basis, occasional gigs as a DJ or musician, occasional copywriting, photo editing, logo making, tutoring, or perhaps selling produce from your own garden.
The law includes this income under so-called other income and, according to Section 10 of Act No. 586/1992 Coll., on Income Tax, allows you to exempt this income from tax.
A simple rule of thumb says that you have to tax anything over CZK 50,000 per year. However, if it is an activity that has elements of a business, you must tax even smaller amounts. If you are not sure whether you have a one-off income or whether it is a business, send us a description of your activity. You will receive a reply within 48 hours.
And now comes the most important part – how much money can you earn in a year on the side without being taxed on that income? You win if your casual income does not exceed CZK 50,000 for the whole year, up to this amount it is tax-free income that you do not have to declare. You don’t have to declare all earnings up to CZK 50,000, you don’t file a tax return for them and you don’t pay any health or social security on them.
However, there are a few rules to keep in mind:
What does this look like in practice?
Eva babysat her friend’s children several times during the year. This friend paid her CZK 10,000 as remuneration. In addition, Eva sold an old refrigerator for CZK 5 000. The total income from her occasional activities was therefore CZK 15 000. The result? This is tax-free income, Eva does not have to deal with anything because she did not exceed the threshold of CZK 50 000.
Martin created a one-off website for a friend and helped him set up social media advertising, for which he collected CZK 55,000. He had no other earnings that year. However, as he exceeded the limit of CZK 50 000, he has to tax the income, even though it was a one-off income. But beware, he is taxing the whole CZK 55,000, not just how much he exceeded the limit by.
Once your casual income exceeds the limit of CZK 50,000, even if it is just a one-off income, you must tax all of it. It is the fact that the whole income is taxed, not just the part over the CZK 50,000 limit, that surprises many people.
You need to file a tax return for this income. In Annex 2, you will list the income according to Section 10 of the Income Tax Act. This income is taxed at 15% (or 23% if it is more than 48 times the average wage). You do not pay social security or health insurance on this income – assuming it is not a business.
Tip: Do you know what public registers exist in the Czech Republic? See what lists we have and check if you are on them.
Some income cannot be considered occasional, even if it is only a one-off income. Examples of this group include:
This is quite a tricky issue as the law does not explicitly define what is occasional and what is no longer occasional. However, several principles apply. If the activity in question is done repeatedly (for example, writing texts every month), it may be considered a continuous activity, then it would no longer be non-taxable income. Similarly, offering services to the public (for example, advertising on the internet) constitutes a business. And if you have multiple clients and are actively seeking opportunities, it may be an illegal business without a trade.
What it looks like in practice:
Tomas sometimes takes photos at weddings. He usually shoots three weddings a year, always for 10,000 CZK. However, he does not advertise it anywhere and takes photos for his friends. Thus, his activity can be considered a one-off income. However, the moment he creates a website, advertises his work on social networks and starts taking photos every month, it will be a business that he must register with a trade license.
If you are not sure whether your activity can be considered as casual income or if it is already a business, you can contact us. Our lawyer will assess your situation and let you know how the law views it.
The law does not require registration of one-off earnings if they are tax-free income up to the limit mentioned above. However, we strongly recommend keeping a simple record of your income. Just for your own overview and possible explanation if you are audited by the tax office. Write down the date, the description of the income, the amount and to whom you provided the service or from whom you received the money. For income from the sale of items, it is always a good idea to provide some form of proof that it is not a new sale, but a sale of a used household item.
Tip: Did you buy Bitcoin a few years ago and now you’ve managed to sell it for a bargain? Then don’t forget that you may need to tax this income as well. You may need to remember that you may need to tax the income you receive, but you may also need to remember to tax the cryptocurrency you receive.
Casual income is a great way to earn money legally without complicated paperwork. As long as you can keep it under CZK 50,000 a year, it’s tax-free income – and you don’t have to worry about a thing. Once you exceed that amount, you need to tax the income on your tax return. If the earnings are recurring or professional, it is no longer a one-off income, but a business, and this requires registration.
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Ondřej is the attorney who came up with the idea of providing legal services online. He's been earning his living through legal services for more than 10 years. He especially likes to help clients who may have given up hope in solving their legal issues at work, for example with real estate transfers or copyright licenses.
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