Think About Your Taxes While Working Your Side Gig

To make some extra money to put back into your savings account, take a nice vacation, or just meet your financial obligations, you may take up a side gig. From giving people rides or becoming a freelance graphic designer to delivering groceries, it’s easier than ever to make extra money on the side. While you’re enjoying the freedom and income that comes with a side gig, be sure you don’t forget about the IRS. You can be sure they won’t forget about you.

Keep Close Track of Your Earnings

Create a spreadsheet that you use to keep track of all the money you earn from your side gig. Depending on the gig you have, there could be an app that makes tracking your earnings easier. Either way, it’s your responsibility to note every penny you earn. The IRS is most certainly doing this on their end, and you want to ensure both your tallies add up to the same amount. At the end of the year, note how much you’ve earned so you know what to put on your 1099 tax form.

Familiarize Yourself With Your Expenses

Besides how much you earn, you should also keep track of what you spend during your side hustle. For example, if you use a ridesharing app, note how many extra miles you put on your car, the depreciation your car experiences, and even how much you spend on things like gum or bottled water for your passengers. There could be tax deductions you can take advantage of that lower your tax bill. To help with this, sit down with a professional from the Tax Group Center team. That way, you know beyond a shadow of a doubt what you can claim and what you can’t.

Know How Extra Earnings Impact Your Personal Taxes

While you’re speaking with a representative of the Tax Group Center, be sure to ask how your side gig earnings could impact your personal taxes. For instance, there could be a tax credit you no longer qualify for as a result of your supplemental income. If you’ve picked up a side gig to help put your kids through college, your efforts could inadvertently backfire in terms of eligibility for financial aid. Figure out how to balance things so that you reap the most financial reward without wasting your efforts.

Pay Quarterly Taxes

If you’ve never worked for yourself before, then you likely aren’t used to paying quarterly estimated taxes. What that means is you estimate how much you’ll owe in taxes in a single year and break that total down into four quarterly payments. Making estimated payments to the IRS allows you to sidestep penalties and fees for failing to make them in the first place. If you can, pay more than you think you need to. If you overestimate, you’ll get a refund, much like you do when a regular employer handles your taxes. If you underestimate, you’ll owe money when tax season rolls around, and you’ll have to pay additional penalties.

Open a Side Gig Account

It’s best to keep your regular income separate from your supplemental income. Doing so makes it easier to keep track of how much you make from your side gig, and it also makes it easier to take care of quarterly estimated payments. Specifically, once you note how much you earn, figure out a percentage to put into a savings account for your quarterly taxes. The rest of the money you can deposit into your regular checking account to spend or save as you see fit. Simply dumping your extra income into your regular checking account can make for a messy soup.

It can be exhilarating to see how much money you can earn from a side gig. Just make sure you have a tax plan for your earnings; otherwise, your exhilaration can curdle to frustration.

Wealth Creation and Saving Strategies | OnMoneyMaking