It’s that time of year where those of us with a side hustle face an ugly reality: Tax Day cometh, and we’re gonna owe the IRS some money. Well, you are. I’m fine.
Most of the year it feels great earning some extra cash, but once you put your side hustle earnings into Turbo Tax or similar, you remember just how badly being a subcontractor f***’s you at tax time.
No matter how you make money online (via Patreon, Uber, Etsy, Podcast Advertising, etc.), chances are you’re considered a subcontractor of the company who’s receiving and processing your earnings. The problem is that as a subcontractor, no taxes are being taken out before you receive that money. The company you’re getting that check from notifies the IRS that they paid you $X, and you inherit the tax burden on those dollars.
Those taxes will either seriously reduce your tax refund or cause you to actually pay the government. Both are gut-wrenching feelings because YOU WORKED HARD FOR THAT MONEY!
Making matters worse, these businesses avoid advising you on how to handle the money at tax time, because every state and country’s tax codes are different. There’s no simple answer that Patreon, Uber, etc. can provide you, and any advice they would give you could potentially make them liable if you screw up your filings.
So, what to do? There’s just one answer that’ll solve your problems: Avoid owing the government money by hiring an accountant and putting yourself on your own payroll. By doing so, you’ll be able to take taxes out before you put that money in your personal bank account.
This topic is heavy. Let’s take a brief break by looking at this soothing photo of my dog Brooklyn on a farm.
Anyway, I think most people who have a side hustle don’t realize they can actually put themselves on their own payroll like they would be at a Real Job. Just because you’re receiving the money from someone else doesn’t mean you can’t funnel it through your own payroll system.
The sorta-kinda downside is that this plan will reduce the size of your monthly paychecks. Hiring an accountant will add to your monthly expenses (pricing depends on your area and who you hire), and taxes will be taken out in advance.
The good news, however, is that this will not only reduce what you owe at tax time, but there’s a good chance you’ll receive a refund from your side hustle once you file your taxes.
One more break.
I have a few businesses and all of them are running through a single company. Thanks to this setup I receive my salary through payroll, so taxes are taken out before I receive the checks. What I deposit into my personal account is all mine. Even better, last year I received a SWEET refund, and it came at the perfect time: It helped me furnish the condo that I purchased.
Hiring an accountant has other big benefits: You’ll have someone handling all of your bookkeeping, so if the IRS ever comes knocking, everything will be accurate and ready for them. Your accountant can also be in charge of filing required paperwork with your state, eliminating the need for you to worry about various deadlines that come with owning a business.
My accountant has been a lifesaver. Early on in the life of my business, filing taxes and other required paperwork were scary tasks. I’m no expert and I did things wrong, so the state would fine me… only after letting more fees pile up! My accountant now handles everything I need to do with the state, and it’s been a huge relief. I can sleep easy at night knowing that everything is being handled by a professional, and an audit would find absolutely no issues with my business. All I’d have to do is hand over our big ol’ book of records and say to the auditor, “my accountant’s great at record keeping, isn’t she?”
Hire an accountant* for peace of mind and to ease the burden at tax time. You’ll be glad you did over the long term. And for those of you in the Los Angeles area, I’d be happy to refer you to my accountant who, thanks to Hypable, is now very experienced in handling online businesses. Feel free to contact me!
*P.S.: Please hire a human accountant who you can work with one-on-one and who knows your state’s rules inside and out. Don’t go with an online service because they won’t be able to handle all of your needs.