#ZebraChat Recap: Taxes and Side Hustles

side hustles and taxes | woman designer working on the pen table

Expenses, 1099s, quarterly tax payments? These words alone are enough to make any side hustler’s head hurt — which is exactly why we took on the subject of taxes and side hustles in February’s #ZebraChat.

The Zebra, along with featured guests Harry Campbell (aka The Rideshare Guy) and Steven Fox (CPA and founder of Next Gen Financial Planning), talked self-employed business with the Twitterverse.

Q1.) Tell us about your side hustle. What are some ways people are earning outside of “normal” employment?

The opportunities for freelance income are endless. Some have taken their day-job skills to the next level and sought additional opportunities for cash. Others have monetized a hobby, passion, or special talent.

Q2.) Are you doing this full time, supplementing your income, or working towards a goal?

There’s no single reason to have a side hustle. Whether you’re paying the bills or have a goal in mind, it’s all work.

Q3.) Outside of money, what is your favorite thing about your side hustle?

Money isn’t always the best motivator. Having a part-time gig can be creatively fulfilling. It can also help develop professional skills that can be applied towards a day job or serve as training wheels for an eventual full-time career as a solopreneur. Another plus? Meeting new people. Expanding your network can lead to other opportunities in the future.

Q4.) What are you using to keep track of payments and expenses?

For basic expense and invoice tracking, Microsoft Excel or Google Sheets seem to do the job. Others agree that upgrading to Quickbooks or another software product might be necessary when your side hustle grows and becomes more complicated (e.g. complex invoices, collecting sales taxes).

Q5.) Are you saving a percentage from payments for taxes? Why or why not?

When you work for a company, your employer will pay half of your taxes, and the other half is taken out of your paycheck. However, self-employed individuals are responsible for the full amount owed.

The Social Security Administration breaks it down like this: “If you work for an employer, you and your employer each pay a 6.2 percent Social Security tax on up to $127,200 of your earnings and a 1.45 percent Medicare tax on all earnings. If you’re self-employed, you pay the combined employee and employer amount, which is a 12.4 percent Social Security tax on up to $127,200 of your net earnings and a 2.9 percent Medicare tax on your entire net earnings. If your earned income is more than $200,000 ($250,000 for married couples filing jointly), you must pay 0.9 percent more in Medicare taxes.”

Making quarterly estimated tax payments isn’t always necessary. You’ll need to be making income that will be subject to income tax. The IRS Pub 505 lists the criteria in much greater detail, and you can follow Figure 2-A. Do You Have To Pay Estimated Tax? to get an idea of what/if you’ll owe. If you’re subject to income tax, and don’t make quarter estimated payments, you may have to pay a penalty.

Another option? If you’re married and file taxes jointly, your spouse can increase their withholding. That way, you’re (hopefully!) not stuck with a high tax bill come April. Or, if you are still working a full-time or part-time job, increase your tax withholding by filling out a new W-4 form.

Q6.) At what point do you deduct expenses? Do you need to be profitable?

There’s no reason to delay deducting expenses. Just save all of your receipts, too.

Q7.) What tax issues are people often unaware of when running a side hustle?

Don’t try to be sneaky and not pay your taxes! A non-existent 1099 doesn’t mean you’re getting away with not paying taxes. You’ll just be setting yourself up for some major headaches down the road.

Also, be aware of how much you’re making. You might accidentally push yourself into the next tax bracket. Prepare accordingly.

Q8.) What advice do you have for individuals just starting their side hustle?

Follow your dreams! Pursue your passions! Don’t let fear of taxes or anything else get in the way of pursuing a side hustle. As Harry Campbell says below, you’ll learn by doing.

And if you’re confused or overwhelmed by the idea, seek out a professional for help. Reach out to your personal network for recommendations, or use websites like Yelp or Thumbtack.

Let’s not forget to recognize the #ZebraChat winner!

Thank you again to all of our participants! Missed our monthly Twitter chat? There will be more! Subscribe to Quoted to receive email updates, or follow The Zebra on Twitter and Facebook.