Starting a side hustle is a great way to bring in some extra income, but it is not tax free. Katherine Pomerantz from BookKeepingArtist.com popped by to share some great tips to help you get your side hustle tax situation in order.
The Bookkeeping Artists Side Hustle Tax Tips
1. Don't Stress
2. Get an EIN (Employer Identification Number) from the IRS so that you don't have to give out your Social Security Number
3. Open a separate bank account just for your side hustle income and expenses
4. Track your hours worked. This may help you deduct portions of your household expenses such as internet and phone service
5. Make sure you have the correct licenses and permits for your side hustle
Click Here for Full Audio Transcription
If you need additional help Katherine is available for private Strategy Sessions at BookKeepingArtist.com
More About Katherine Pomerantz
Hi, I'm Katherine Pomerantz. I'm the most enthusiastic, resourceful, and dedicated money mentor you'll ever meet. I help entrepreneurs on the edge of burn out improve their relationship with money so they can build their business empire authentically and sustainably.
I translate accounting and business jargon and train my clients to lead, think strategically, and love their money by combing 1:1 coaching and worksheets with practical tax and bookkeeping services. And I love my job! I absolutely live for the moment my clients stop stressing and start acting like the badass CEO they always were.
Connect with me at bookkeepingartist.com
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Full Audio Transcription
Audio transcription is still a work in progress, sorry for any errors. Please let me know if they are helpful 🙂
Chris: 00:00 Hey, this is Chris, hope you're doing well and welcome to Popcorn Finance where we discuss finance in about the time it takes to make a bag of popcorn. I'm excited to be back here with you today because I'm joined by a great guest, Katherine Pomerantz from bookkeepingartists.com. How's it going to Katherine?
Katherine: 00:15 Hi. I'm really good. How are you?
Chris: 00:20 I'm doing Good. Doing good on this what is it? Tuesday, Wednesday. I don't even know what day it is. I think Wednesday night.
Katherine: 00:20 Wednesday night, Yeah.
Chris: 00:26 That's how you know you've been too busy at work when you don't even know what day of the week it is. So
Katherine: 00:29 I mean we both are accountants and Tis the season.
Chris: 00:29 Exactly, of just nonsense hahaha!
Katherine: 00:29 [laughter]
Chris: 00:38 Well, I think I thank you for taking the time out of your day to come and join me here.
Katherine: 00:42 Absolutely. Absolutely. I'm really excited for this.
Chris: 00:45 Yeah, for sure. Because the main reason other than you know, you just being a great person that I brought you on here is that a lot of people are starting to take on these side hustles. You know, we have this gig economy going on where people are doing, you know, everything from, you know, like the structure things like an uber or a, like a postmates delivery service or they're, they're doing their own thing that they started on their own.
Um, you seeing this as being more and more a part of the income people are taking on. With that comes a lot of responsibility, a lot of things that you need to take into consideration that you wouldn't if you were a traditional employee and one of the big items is taxes because it's all on you because you're the only one there.
Katherine: 01:22 Absolutely. No, it's so true. Um, I think we're gonna see more and more rise of the side Gig as the years go on, especially with the new tax cuts. It's more profitable than ever to be in business for yourself. And that's great news. I love that.
Chris: 01:41 It is difficult because most people don't have this knowledge of what to do as, as you know, as a solopreneur or entrepreneur or just someone doing something on their own. And so I wanted to bring you on here, Katherine, because if I didn't already say, you know, Katherine, she's from bookkeepingartists.com, she's a money mentor.
You help individuals like combined tax strategy, bookkeeping strategy to kind of help them have a better relationship with their money. And on top of that, you're a licensed tax preparer. And if anyone has some tips for people out there looking to take on these taxes and, you know, handle their finances as a, as an individual, it would be you. So Katherine, what tips do you have for us as a side Gig workers, side hustlers, to handle their taxes?
Katherine: 02:23 Yeah, absolutely. Um, well my first advice is don't stress. Which probably sounds counter-intuitive, but a lot of people, they get really caught up in doing the right thing. And very first and foremost, I want to emphasize that despite how it appears, the right thing is a little bit gray. Now, there are good rules to follow and I'm going to give you a bunch of them as well as many as I can cram in, right in a, into a bag of popcorn.
But there, the chances of getting audited is less than two percent, and with more and more people jumping on this side Gig, this entrepreneurial adventure, it's going to probably drop even more. Like the IRS is used to seeing this. Now it's no longer raising red flags. So that's the very first thing is don't stress. And the second thing is though, make sure you are prepared because you're going to owe self employment taxes on any income over $400.
And most people don't think that they think, well, I didn't receive, you know, a 1099 Misc, I didn't get paid $600 by someone. But it doesn't matter if you own a lemonade stand and you're selling lemonade at fifty cents a pop, as soon as you make $400 selling lemonade, you owe taxes. So you don't want to ignore it. Somebody is going to come knocking for their chunk of that money.
Chris: 03:46 That's a really good point because I didn't even think about that because you know, I've been, I've been a W-2 employee my whole life. I've always known that, you know, if you work, if you earn more than $600, you, you have to get a 1099, but I didn't realize that at the actual threshold for paying tax and self-employment taxes was $400, so that's a great tip,
Katherine: 04:03 right? Well, it's like any business, right? You know, I use the lemonade stand because it's cute, but it's the same thing as if you own a coffee shop, no one's going to send you a 1099 Misc. No one buys $600 worth of coffee in one go, but you're still in business and you still need to treat yourself like a business.
Um, and so even if you're a side hustle or even if you're a freelancer and you're selling little things on etsy or you're doing, you know, these 10, $20 transactions or less at a pop, if it adds up enough, then yeah, that's a business and you need to think like a business and you need to treat it like a business. And that includes prepping for taxes.
Chris: 04:38 I'm going to actually write that down.
Katherine: 04:43 Mediapreneurs totally count. If you podcast, if you blog, you are self employed and that is great news. So there are some specific tips for how to actually record and get ready for tax season and make it a little stress free. So do you want me to just run through some of these and see how many we can fit in?
Chris: 05:02 Go for it.
Katherine: 05:02 Great. So the very first thing I would like you to do if you were thinking about starting a side Gig is go and open a business checking account because you want to have your business in your personal income separate. Now this is not actually a hard and fast rule. There is nothing that the IRS is going to say that means you have to do this, but it's going to be really, really good idea because it's going to help you track what your actual cash flow is, where your actual income is and it's going to be way easier to claim deductions and show, hey no, this was business that came out of the business account.
Actually, I guess I should back up because to open a business account, you need an EIN that's an employer identification number. Again, it's not required, but it's a really great idea because if you don't have an EIN when people want to pay you and they send you a W-9, you're going to have to give them your social security number.
Katherine: 05:53 I wouldn't want my social security number floating around, so why not get an EIN and it's free. You can do it from the IRS' website. It takes only a few minutes and it's a great way to get yourself started. Then you can open that business bank account and then you can start keeping really, really thorough records and that's what we call bookkeeping in the accounting world.
That is what it just means is like keeping track of your income, keeping track of your expenses, who you pay, keeping receipts. That's all part of bookkeeping. Yeah, it is. That's what bookkeeping is. That's what accounting is. And the big step to that though, is not only having these records to, you know, show on your tax return, but also to review these records and to make steps to make sure that you're always profitable, to review the records and look back and be like, no, I'm in business.
Katherine: 06:35 I'm being serious. I am making strides to make more money. That way even if you're at a loss, you can still claim, no, I'm real. I'm a real business. I can deduct this loss because here I am thinking like a business, acting like a business, like going through my own records and creating strategies to improve them.
Along with that, I want to make sure if you start a business, make sure you have the proper licenses, the proper insurance, and the proper certification for your industry. And this is very specific to your location. Oftentimes there are zoning laws that prevent certain types of businesses being operated out of your home, depending on where you live.
So check with your county, check with your state, do a quick google search on the state's website and just see what pops up. Make phone calls. In my experience and when I help clients, I can get somebody on the phone and they're thrilled to help me because I'm bothering to ask the question how many people get in trouble because they're not, they just don't even know to ask that. And then they have fees on the line or they run out of business because they weren't legal and all sorts of mess. So they would love to help you from day one, get you on the right track.
Chris: 07:42 That's a great point. Because I don't think that many people think about the fact that maybe you shouldn't be running the business
Katherine: 07:50 Well and oftentimes it's just as simple as getting a permit or is getting, uh, you know, they, they'll make exceptions depending on the type of business or they just say, hey, as long as you only have like one client at a time, if you're running a music studio, for example, that's a big one. They're like, well, parking becomes an issue. How many people you can have in your home becomes an issue, so again it's have that conversation with your county clerk or whoever the office person is, or whoever that you need to talk to. And you know, it's not a big deal usually to get it taken care of.
The other thing then if you're working a full time job and you do have a side Gig, document the hours you spend on that side Gig, that will again help show that I worked these hours I worked with this time and that'll help with like your Home Office deduction, like proving I need to take away this part of my internet, this part of my utilities because I was actually working in my home this many hours.
Chris: 08:39 That's a great one because you know, when it comes to tax, like tax time and you're getting everything together, you're not going to remember what happened or what you were doing 12 months ago.
Katherine: 08:52 Oh no. And the IRS does not accept estimates. Plenty of people will say, oh, drives me nuts. Wow, OK. I love what I do. So of course I get really passionate about it, but a lot of people will try and be like, well it's like 25 percent of the time. And I'm like, well we can put that??? But I want you to start using a time tracker. Like I don't care if you just write it down and put it on a Google doc and you just update like, oh, one hour today, 1 hour this day or, but there are free apps that will do it.
There's apps that will like pair with your accounting software that does it. There's so many great ways to make it a piece of cake and then you can just show the government and be like, Hey, I did this, and then they'd be like, great, you did that, and then problem solve. Everybody's happy and you're probably getting a bigger and more accurate deduction because if you try to remember back, you're not gonna remember every time you did it, but if you log in and you're like, I was working here, I was working here, I went to this meeting. You know all that sort of stuff means your deduction is going to be bigger and you're going to be able to take even more back.
Chris: 09:46 That's a great tip right there because record keeping as a whole is something that most people forget about it. So having these little details, these little tips you need to keep track of, it's going to make a huge difference, especially when it comes to when your accountant is asking you. So what did you do this year?
Katherine: 10:00 That's why I'm the Bookkeeping Artists is because that is where it all starts. That's step one
Chris: 10:08 Katherine it was really great having you here. I think these were some, some really, really great tip. So just to recap really quick, number one, don't stress. Step two was try to create a separate account. Maybe open up a business account to keep your money separate so you can not only know what money is going where, but also be able to show like you said, your progress and make it that much easier if you need to claim a loss or, or any other specific type of deduction because you can clearly see a separation.
And then, um, also make sure you have the correct licenses or permits for where you're actually doing your business. I think that is one that can be overlooked many times. Katherine, thank you again. I appreciate you spending some time here with me. And before we go, is there anything going on and you like to share with the listeners? Anything special you have going on that, um, that could be helpful at all?
Katherine: 10:47 Oh yeah. If you are in business or if you're thinking of starting a business or if you just have some questions about profit strategy or taxes or how to kind of make more money with what you're doing. I do have an introductory rate for strategy sessions so you can buy an hour of my time and it's not a sales call. It is literally just, Hey, you need me for an hour. So we're going to sit down and get real nitty gritty and that's for a nice introductory rate. You can find out more information right on my website BookkeepingArtists.com.
Chris: 11:17 I think that's a great service, especially because it's a one off. You can go in there and get some advice, get some strategy to help you get started and maybe clear up some of those, those difficult situations that you're dealing with. So yeah, no, that was great. Thanks for offering that. Also, is there any place online we can keep up with the other than BookkeepingArtist.com?
Katherine: 11:31 I am on facebook but I confess I am bad at social media so you can again find me at bookkeeping artists on facebook. I do have a live channel that I do every Wednesday with more money in tax tips like these.
Chris: 11:46 Great! So Katherine, appreciate it. I think this is gonna be really helpful for everyone, especially going into tax season and also just getting ready for, for next year because you know, we're already, you know, over a quarter of the way through the year and so it's no better time to start than right now to get ready for 2019 tax season. So I think this will definitely be helpful.
Katherine: 12:04 Thank you Chris. And like I said, I knew this was going to be fun and so I'm really glad you had me.
Chris: 12:11 I definitely enjoyed it. Hope to have you on again because, you know, tax preparation or getting ready for your taxes is a year round thing. So I'm sure you have a lot more knowledge locked in your brain that's going to be helpful with everyone else.
Katherine: 12:11 Yea let's get that info out!
Chris: 12:23 I'll talk to you soon.
0 Responses
Thanks for sharing this tips. I really enjoy this such an informative article. I found this tips very helpful.
You’re welcome and thanks for checking out the episode! Katherine is an amazing resource and shared some great tips.