Freelance gigs, second jobs, and “side hustles” are a great way to earn some extra income. However, this extra income can also cause tax issues if you aren’t prepared to properly report and pay taxes on it.
Follow these tips to avoid creating tax problems when you take a second job or side gig.
Withhold Your Own Taxes
Independent contractors and self-employed taxpayers need to withhold their own estimated taxes throughout the year. If you’ve never worked as a freelancer, you may be surprised to learn that you’ll need to pay 15.3% of your income in self-employment taxes, on top of federal and state income taxes.
A failure to pay estimated taxes can lead to several problems:
- You face a big tax bill when you file your tax return.
- You’ll be charged underpayment penalties and interest.
- Your IRS tax debt may be more than you can afford to pay back right away.
You have two options to avoid these issues. First, you can pay estimated taxes four times a year. It takes some effort to determine you much you should pay, but it will become a habit that protects you from getting behind on your taxes.
Taxpayers who have a day job as an employee have another option. They can simply increase their withholding on Form W-4. Your take-home pay from your main job will go down, but you won’t need to worry about making estimated tax payments.
Get Tax Help
It will require more effort to do your own taxes if you have multiple sources of income. It may be worth the investment to work with a professional tax preparer instead.
Even if you use a tax preparer, you’ll still need to do some work yourself, such as:
- Keep your own records of how much you earn. Your clients or payment processors don’t always have to send you a 1099-MISC or 1099-K, but you still need to report that income.
- Track your business expenses. If you work as an independent contractor, you may be able to tax a business expense deduction for mileage, phone bills, and other ordinary and necessary expenses.
If you don’t report your taxes correctly, you may increase your risk of an IRS tax audit. Contact a tax attorney if you have unpaid taxes from a side gig or have received a notice from the IRS.
The Gartzman Law Firm can help you with unpaid taxes and other IRS tax problems. Use our contact form to request a consultation with an Atlanta tax resolution attorney.