Running a side hustle is no easy task. You juggle your business alongside a job and other responsibilities while trying to increase sales. Finally, you gain some traction. If you’re like many part-time entrepreneurs taxes is not the first thing on your mind. However, ignoring them could be a big mistake.
Unlike your regular job where your employer withholds taxes from your paycheck, as an independent contractor, you typically submit those taxes on your own by way of estimated taxes.
ARE YOU REQUIRED TO PAY ESTIMATED TAXES
If all of the following are true then estimated tax payments are not required:
If the above does not apply, and you expect to owe at least $1,000 when you file your return, these estimated payments should be made. They are due in quarterly installments. Monthly bookkeeping will help determine the net profits from your business.
Keep in mind that even if estimated taxes are not required, income earned from your side hustle will need to be included in your gross income for the year.
Penalties can be assessed if these estimated payments are not made. However, someone can help you to avoid those penalties: your employer. By decreasing the number of allowances claimed on Form W-4 your employer will increase the amount of tax withheld from your paycheck. Alternatively, you may instruct your employer to withhold an additional amount on Line 6 of Form W-4.
It’s great to keep your entrepreneurial dreams alive but don’t the failure to pay estimated taxes create a shock when taxes are due in the following year.