Business

How much tax do I have to pay with a side job?


How to avoid paying taxes on side work?

How to avoid paying taxes on side work?

The economy temporarily supports the budgets of millions of Americans – but there are tax implications from part-time jobs. Fortunately, you can tax reduction about your side job, depending on your situation.

For help figuring out how side work will affect your taxes, check out work with a financial advisor.

Do you have to report your income from a side job?

Federal tax law requires you to report income from extra work. While taxes may automatically be deducted from your paycheck from your day job, the hustle on your side will create self-employment income. Therefore, it is up to you to report this income when filing taxes. Failure to do so could result in severe financial penalties.

The only exception to this rule is if you are under 65 years of age and meet one of the following conditions:

  • You file your taxes alone and earn less than $12,550 this year.

  • You file a joint return and earn less than $25,100 or $26,450 this year if one spouse is over 65 and the other is under 65.

  • You claim as head of household and earned less than $18,800 this year.

  • you are separate marriage and earn less than $5 this year.

  • You apply as a qualified widow or widower and earn less than $25,100 this year.

In general, you should file a tax return even if you are below the income threshold to file. You may be eligible for specific tax credits, such as Earn income tax credits, that could generate a profitable return from the government. As a result, income reporting from side jobs is required if you’re above the income threshold for your profile type, and it can be financially beneficial if you’re below that threshold.

How much tax do you pay with a side job?

Normally, you will pay self-employment tax is 15.3%. In addition, you will pay income tax for each tax bracket. Income tax ranges from 10% to 37%, depending on your income level and filing status. Therefore, you should designate at least 25% of your income for tax payments.

You will probably get a 1099 . model for your side job income (as opposed to W-2 you should get it from your employer 9 through 5) by January 31. While the W-2 shows your income with withheld taxes, the 1099 form shows how much you earned with as an independent contractor.

Remember, you will receive a 1099 form for each side hustle. For example, if you’re an Uber driver and run Airbnb, you’ll get 1099 from each company detailing how much you earn working with each. If you make less than $600 at one of your side jobs, you may not get the 1099. In this case, you still need to report income if it’s over $400.

How to pay your estimated tax bill

You will pay your estimated self-employment tax bill quarterly. As a result, you will owe taxes on the following schedule:

  • You file taxes on April 15 on income received between January 1 and March 31.

  • You file taxes on June 15 on income received between April 1 and May 31.

  • You file taxes on September 15 on income received between June 1 and August 31.

  • You file taxes on January 15 on income received between September 1 and December 31.

To send payments, you have several options:

  • Pay on the IRS website (irs.gov/payments) by debit or credit card.

  • Business owners can pay by phone and online after signing up for the Electronic Federal Tax Payment Service.

  • Download the IRS2Go app and pay on your smartphone or tablet.

  • Send a check or money order to your local IRS office.

Additionally, after the tax year, you will file your tax return as usual on April 15. You will use Form 1099-NEC from each of your side jobs. This form determines how much you earn as a non-employee. For example, if you are an Instacart driver in 2022, you will receive a Form 1099-NEC from the company by January 31, 2023, showing your income. You then have until April 15 to file your taxes for 2022. Income from 1099-NEC will be included on Form 1040 Schedule C when you file. Remember, you will be doing quarterly filings and year-end filings.

What if you don’t pay taxes on your side job?

How to avoid paying taxes on side work?

How to avoid paying taxes on side work?

Do not pay taxes Your side work will result in financial penalties from the IRS. Specifically, the IRS will calculate taxes payable on the income plus actual interest for that quarter. As a result, you will have to pay the taxes owed plus a percentage as a penalty. Additionally, you may be subject to a 0.5% penalty for each month of non-payment of taxes.

That said, the IRS won’t penalize you if you make quarterly tax payments that are slightly off target. As long as you pay at least 90% of your taxes owed throughout the year, you won’t have a financial penalty on unpaid taxes (provided you make up the difference on your annual tax return). mine).

How to avoid paying taxes on side work

While you can’t completely avoid paying taxes on your part-time job, list deductions when you pay taxes can minimize your tax burden. For example, the following strategies can reduce your taxes:

Ordinary and necessary expenses for your business

As a private tax preparer, some of your expenses are considered normal and necessary. Usual cost are the inevitable costs of running your business. For example, the cost of office supplies and statutory mandatory insurance policies are tax deductible.

On the other hand, necessary expenses are useful but not important to your work. For example, you can deduct 50% of the cost of meals you discuss business. So it’s important to keep any receipts for common and necessary expenses to maximize this deduction.

Business costs

While W-2 employees have limited access to work-related deductions, self-employed workers have more rights. For example, many side hustle jobs require the use of vehicles. As a result, you can usually deduct the cost of fuel, repairs, registration fees, and insurance.

In addition, you can deduct cell phone costs if you use your phone for work. For example, if half of your phone usage is business-related, you can deduct 50% of your monthly phone bill from your taxes.

Home office deduction

If you use your home to run your small business or hustle, you can take advantage of the home office deduction. To do so, you must have a designated space that you use exclusively and regularly for work. Additionally, this space should be the primary location where you run your business. Some types of businesses, such as storage, daycare, and hotels, are not eligible for this deduction.

Track your expenses

Detailed record keeping is essential to maximize your deductions. Also, you’ll need to back up your tax figures if the IRS checks you. Therefore, you should log all business-related receipts, record expenses, and create a system that allows you to organize this information. If you have a complicated tax situation or need help maximizing your tax return, you should work with a tax expert.

Key point

How to avoid paying taxes on side work?

How to avoid paying taxes on side work?

Part-time jobs can be lucrative, but they also impose taxes on earned income. Furthermore, failure to pay these taxes quarterly may result in a financial penalty by the IRS. However, by paying the right amount of taxes on time and maximizing deductions for business-related expenses, you can reduce taxes from side jobs and pocket extra hard-earned money.

Tax advice for side jobs

  • Multi-tasking can make it difficult to track expenses and file at the right time. One Financial Advisor can help you organize your finances and pay your taxes correctly. Finding a qualified financial advisor is not difficult. SmartAsset of free tools connects you with up to three vetted financial advisors serving your area, and you can interview the right advisors for you for free to decide which one is right for you. If you are ready to find an advisor who can help you achieve your financial goals, start right now.

  • Finding out your taxes can be overwhelming. SmartAsset of income tax calculator will help you calculate federal, state and local taxes.

Image source: ©iStock.com/gahsoon, ©iStock.com/SB Arts Media, ©iStock.com/Antonio_Diaz

Post How to avoid paying taxes on side work appeared first on SmartAsset Blog.

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