In the 1980s, there was a shift from one-earner households to two-earners. As the years have gone by, we’re seeing workers pick up a side job for extra cash. That’s because wages have stayed steady while the cost of living has gone up.
About 40% of Americans have a side job. That extra cash is great if you want to save up for that long-awaited vacation or to pay down debt. The one thing that people forget about is to pay tax on that income.
If you’re a contractor or working on your own, that’s your responsibility. Would you like to know how you can manage your taxes and avoid a huge tax bill in April?
Keep reading to find out.
Know Your Tax Responsibilities
The first question is whether or not you have to report your side job income on your taxes. If you’re making more than $600 a year from your side gig, you need to report that income to the IRS.
You’ll also need to pay taxes on that income. For federal taxes, you’ll owe at least 15.3% for social security and Medicare taxes.
You may also need to pay state and local income taxes, which will vary by location. In Pennsylvania, there’s a flat tax of 3.07%.
Pay Estimated Taxes
Do you have a blog or another side gig that pays very well? You’ll need to figure out if you need to pay estimated taxes or not.
If you’re going to owe more than $1000 from your side job, you’ll want to pay estimated taxes. That’s even if you have a regular job that withholds taxes.
You’ll want to set aside money from your side job as soon as it comes it. You can create a separate savings account to make your life easier.
Did you know that you deduct certain expenses for your side job? For example, if you’re a driver, you can deduct mileage from your taxes.
The IRS makes a distinction between having a hobby and a business. You’ll need to know what your business is before you take these business deductions.
Have a Paper Trail
When it comes to the IRS tax authorities, you need to document everything. You want to have a paper trail for your side job income, income from your regular job, and business expenses.
You can’t just show your bank statements to prove income and expenses. Keep all of the receipts of your business expenses. For your side job income, you’ll want to use a paystubs service to document your income.
Manage Your Side Job Income the Smart Way
Taxes are often an afterthought for people with a side job. You don’t want to be caught off guard with a big tax bill, so you want to plan ahead.
You’ll want to know what your tax responsibilities are, set that money aside, and document everything. You may want to get professional help early on in the process to make sure you’re taking the right steps.
Do you want more financial tips? Check the blog often for articles to help you manage your finances.
Shift Frequency © 2019 – How to Document Pay From a Side Job for Taxes