Author Topic: Side Gig Income Taxes  (Read 4846 times)

FarmerPete

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Side Gig Income Taxes
« on: February 12, 2015, 02:09:16 PM »
I have a small side gig fixing computers on the side.  We're talking $500 a year on average.  I really don't want to pay 34.25% (15% marginal + 15% SS + 4.25% state) in taxes on that income.  Is there any place I can put the money or defer the income until later?  Is there any way to leave the money in the business account and not claim it as income right now?  I have a 401k/457 from my full time employer, and I have a personal IRA & Roth IRA.  Can I open a SEP-401k or something to reduce my taxes on that $500?  Any legal options?  I know I could just not report the income, but I'd much rather not break the law.  I don't have many business expenses really.  Perhaps a portion of my cell phone or internet bill.  Ideally, it would be nice if I could just leave that money in a business checking account, and then treat it like a retirement account of sorts.  Money wouldn't necessarily grow much, but I really don't need to draw a salary/wages from the business today.

ColorOfCash

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Re: Side Gig Income Taxes
« Reply #1 on: February 12, 2015, 05:19:51 PM »
Is it within a corporation with separate tax ID or as self-employed income? That varies the answer.

- In corporation, close that business down. The effort of filing corporation return paperwork, etc, not worth the money.

- Self-employed income, bring it down to $399.99 a year and no schedule SE required. See http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Self-Employment-Tax-Social-Security-and-Medicare-Taxes

Of course, I'm not a lawyer, I've just had small businesses I've shut down and filing my Schedule SE for 2014.

DoNorth

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Re: Side Gig Income Taxes
« Reply #2 on: February 12, 2015, 05:39:30 PM »
Set up a solo 401.  Limits are by person, not plan so contribute up to $17500 for normal work plan and put $500 in your solo 401k.  You'll have to pay a small amount in SET, but no income tax.  On line 28 of your 1040, you can put the tax deferred portion and it will subtract it from your AGI.

http://www.irs.gov/Retirement-Plans/One-Participant-401%28k%29-Plans

You'll need a Tax ID number which you can get quickly from the IRS.  I used Vanguard and just put all my wife's free lance income in VTSMX--low fee and it shields almost all of it from income tax.

kpd905

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Re: Side Gig Income Taxes
« Reply #3 on: February 12, 2015, 05:50:15 PM »
Are you already maxing out all tax advantaged accounts at work?  If you don't, put an extra $500 in, and you just effectively deferred your side gig income.
« Last Edit: February 12, 2015, 06:19:42 PM by kpd905 »

fragglebock

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Re: Side Gig Income Taxes
« Reply #4 on: February 12, 2015, 06:18:30 PM »
You have to declare the money in the tax year it was earned (cash accounting method). Leaving it in a business checking account doesn't change that.

If you want to defer taxes, you can put some of the earnings in a retirement plan like a SEP IRA. You still have to pay taxes on the rest (but you get to deduct the employer portion of the SE tax). The solo 401k option that DoNorth mentioned seems like a good idea too.

Double-check those expenses, too. If you earned less that $400 NET then you don't have to file Schedule SE or pay the taxes.

Helpful Links:

http://www.irs.gov/Retirement-Plans/Retirement-Plans-for-Self-Employed-People

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Self-Employment-Tax-Social-Security-and-Medicare-Taxes
« Last Edit: February 12, 2015, 06:23:57 PM by fragglebock »

FarmerPete

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Re: Side Gig Income Taxes
« Reply #5 on: February 13, 2015, 07:41:03 AM »
If my side gig income was under $400, but my wife's side income was $2000 and we're filling jointly, would that make my income subject to the self employment tax?

DoNorth

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Re: Side Gig Income Taxes
« Reply #6 on: February 13, 2015, 07:50:27 AM »
depends how you're set up.  Are you both separate sole proprietors?  Do you fill out two schedule C's with separate business expenses etc?  Do you use the standard home office deduction?

If my side gig income was under $400, but my wife's side income was $2000 and we're filling jointly, would that make my income subject to the self employment tax?

Retire-Canada

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Re: Side Gig Income Taxes
« Reply #7 on: February 13, 2015, 08:29:28 AM »
$500/yr?...I'm not general in favour of cheating on your taxes, but that's not worth reporting or dealing with unless you are getting some major business deductions.

Why bother having a business account for that income? Just ask for cash or take a cheque and dump it in your personal account.

-- Vik

MustachianAccountant

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Re: Side Gig Income Taxes
« Reply #8 on: February 13, 2015, 08:55:12 AM »
$500/yr?...I'm not general in favour of cheating on your taxes, but that's not worth reporting or dealing with unless you are getting some major business deductions.

Why bother having a business account for that income? Just ask for cash or take a cheque and dump it in your personal account.

-- Vik

Tax fraud is generally frowned upon.

BarkyardBQ

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Re: Side Gig Income Taxes
« Reply #9 on: February 13, 2015, 10:46:56 AM »
Such a small amount:

If it's actually a business and not just freelanced cash...
Treat your wife to dinner and talk about business for half of the meal, then it's an expense instead of being income, save $500 of your other income and invest it.

If this is stuff you do for friends...
Have them buy you dinner, concert tickets, bowling night, or whatever you like to do with them and reduce your expenses.

I do favors for friends but I don't charge them, they usually just invite us over for dinner or buy us beer and hot wings. :)
« Last Edit: February 13, 2015, 10:53:03 AM by zdravé »

FarmerPete

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Re: Side Gig Income Taxes
« Reply #10 on: February 13, 2015, 11:03:19 AM »
$500/yr?...I'm not general in favour of cheating on your taxes, but that's not worth reporting or dealing with unless you are getting some major business deductions.

Why bother having a business account for that income? Just ask for cash or take a cheque and dump it in your personal account.

-- Vik

Tax fraud is generally frowned upon.

I typically haven't been claiming it, because quite honestly, I wasn't tracking it.  I used to do work for friends for whatever they wanted to pay me.  After a few of them abused that, I decided to more formally start a business fixing computers.  I figured that having a formal hourly charge would mean that they'd either stop calling me, or I'd get paid enough to make it worth while.  Most of the people I do work for are friends or acquaintances.  I've got one or two people that I didn't know before, because of referrals.  The work tends to come infrequently.  I'll have three people looking for help next week, and then I wont get any calls for a month or two.  I don't charge enough.  I should charge more.

My wife, on the other hand, is providing child care in our home for a friend of ours two days a week.  She makes about $300-500 a month.  It is significant enough that we've been tracking it.  In the past, I haven't tracked much in the way of deductions.