Author Topic: Taxes for side gig?  (Read 268 times)

LPG

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Taxes for side gig?
« on: November 07, 2018, 02:55:40 PM »
Is anybody aware of a great guide talking about how to make the best use of tax breaks for self-employment, especially for those doing it as a side gig while employed in a salaried job? I've recently started doing some free lance data science work and am trying to figure out how to minimize my taxes on the side work while not breaking any laws. Specific topics I'm interested include:

  • Tax breaks for purchasing equipment, advertising, other business expenses
  • How much of the side-gig money I can put into tax advantaged accounts such as SEPP-IRAs, even though I already use a 401k and Roth IRA
  • I've heard of people arranging the books of their sole proprietorship so the business loses money getting them a tax break, while they collect a salary. What wizardry does this entail? Is it legal?
  • And the most open-ended question: Clearly this is an area where I don't know what I'm talking about, so what is important to know that I probably haven't even thought of yet?

Thanks in advance!

terran

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Re: Taxes for side gig?
« Reply #1 on: November 07, 2018, 04:01:20 PM »
As far as I'm aware the home office deduction (requires a space used regularly and exclusively for business) and the mileage deduction are the only things that can result in greater deductions than what you actually spend. Other than that you'll get a deduction equal to the amount you spend, so certainly deduct what you can, but it's silly to spend money you wouldn't otherwise spend just to get a deduction.

I would suggest you spend some time looking through Schedule C (business income and deductions) and Schedule SE (self employment tax) and the related instructions. Fill them out with some made up numbers and see what you come up with. Once you've done that you should have a very good understanding of business taxes.

See the "Rate Table for Self-Employed" worksheet at https://www.irs.gov/publications/p560 for how to calculate a SEP IRA contribution. Note that step 9 should be $0 since you already max out a work 401(k). You might consider opening a solo 401(k) for your business instead of a SEP IRA. Since you already max a 401(k) at work they'll have the same limit, but a SEP IRA would interfere with a backdoor Roth contribution while a solo 401(k) wouldn't. If your income isn't over the Roth IRA limit, then going with the SEP is fine.

LPG

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Re: Taxes for side gig?
« Reply #2 on: November 08, 2018, 11:50:08 AM »
Great, thanks for the advice terran. I'll dig through those and report back if I find that I have questions.