Contents
Side Hustles: Juggling Cash and Taxes
Whether you drive for Uber, walk the neighbour’s dog, or freelance online, extra cash certainly helps with bills and savings goals. However, it’s not all straightforward. With the joy of additional earnings comes the burden of managing one’s own taxes.
The Importance of Early Preparation
As the year draws to a close, it’s wise to evaluate your business finances to maximise tax savings. While it’s true that the 1099 tax forms usually appear around January, it’s never too early to gather your documents. Invoices, bank records, and receipts, all play a pivotal role in calculating your earnings and potential deductions.
Timing Your Income
An effective strategy is the timing of your income. If you’re in a higher tax bracket, deferring some income might help. Strategies could include delaying billing to customers. However, holding off on cashing checks isn’t a wise move. For gigs with less payment control, perhaps avoid taking on work near year’s end.
According to TaxAct, such strategies can be beneficial.
Strategic Spending and Deductions
Year-end purchases can lead to tax savings. Consider buying a necessary work computer or setting up a home office before December ends. Nonetheless, some expenses might need to be depreciated over time. It’s crucial to review the IRS deduction rules carefully. Avoid unnecessary buys just for the sake of tax deductions.
Retirement Contributions and Tax Perks
Strategically contributing to retirement can aid in deferring income. For example, you can add to a 401(k) or traditional IRA. In 2024, limits allow up to $23,000 for a 401(k) ($30,500 for those 50 or older) and $7,000 for an IRA ($8,000 if you’re 50 or older). Such contributions might even offer you a tax credit, as noted in the 2024 IRS limits.
For those owing $1,000 or more in taxes, making federal quarterly payments is a must. Otherwise, interest and penalties loom. To avoid surprises at tax time, consult Form 1040-ES for calculating these payments. The final quarterly payment for 2024 is due on Jan. 15, 2025.
Choosing the Right Business Structure
Many operate as sole proprietorships, which is simple. Yet, self-employment and income taxes apply to all profits. For some, an S Corporation might prove more beneficial. As TurboTax points out, S corporations offer liability protection and potential tax savings but also increased complexity.
Why Consider Professional Help?
While managing taxes on your own is feasible, seeking professional help might be wise. Experienced tax professionals can unveil money-saving strategies and simplify complex returns. Moreover, the savings might outweigh the cost of hiring, with the added benefit of being a deductible business expense.
For more insights, check out year-end tax moves to consider.
It’s a financial maze out there, but with some savvy planning, side hustlers can come out on top.
