Hello,
I have a W-2 full-time job but also earn side income through teaching aquatics training courses for various city pools. With this side gig I have to fill out 1099s. I have a few questions because of this:
1. Do I need to pay quarterly estimated taxes? How much and when?
2. What should I be tracking for deductions?
3. Should I open a separate bank account for my side gig?
4. Would forming an LLC help me save on taxes?
Thank you!
1) Do I need to pay quarterly estimated taxes? How much and when?
Yes, you likely need to pay quarterly estimated taxes if you expect to owe $1,000 or more in taxes for the year
You can often increase your withholding from your W-2 job to cover the tax liability from your side gig, effectively "paying" your estimated taxes through your regular paycheck. Use the IRS Tax Withholding Estimator tool online to help you figure out how much extra to withhold. This can often be simpler than making separate quarterly payments.
IRS article: A guide to withholding, estimated taxes and ways to avoid the estimated tax penalty
TurboTax help article: https://turbotax.intuit.com/tax-tips/self-employment-taxes/myths-about-quarterly-taxes-for-the-1099-tax-form/L46qZt376
2) What should I be tracking for deductions?
For your aquatics training courses, you'll be able to deduct "ordinary and necessary" business expenses on Schedule C, Profit or Loss from Business. Some of the common expenses are supplies, equipment, advertising, training & certifications, work related uniforms, Mileage expenses if you used vehicle for business.
3) Should I open a separate bank account for my side gig?
Opening a separate bank account for your side gig is highly recommended. It makes tracking income and expenses for your Schedule C much, much simpler. All your business transactions are in one place, avoiding the need to sift through personal statements. In case of an IRS audit, having a separate account makes it clear what money is business-related versus personal.
4) Would forming an LLC help me save on taxes?
For federal income tax purposes, a single-member LLC is typically a "disregarded entity" by default. This means the IRS treats it the same as a sole proprietorship. Your income and expenses from the LLC are reported on Schedule C of your personal tax return (Form 1040), and you still pay self-employment taxes. So, for federal income tax, you're taxed just like a sole proprietor.
@ljb322 Thanks for the question!!
1. Do I need to pay quarterly estimated taxes? How much and when?
It would be helpful to pay estimated taxes. Here are the due dates for quarterly estimated tax payments for a calendar year taxpayer:
For the most up-to-date and detailed information, always refer to the IRS website:
2. What should I be tracking for deductions?
Some common expenses to track (not an exhaustive list):
Key to Tracking Expenses:
By diligently tracking these common expenses, you can significantly reduce your taxable income and save money on your self-employment taxes.
Helpful links:
Reporting Self-Employment Business Income and Deductions
3. Should I open a separate bank account for my side gig?
It is definitely a good idea to have a separate bank account for your side gig. It makes tracking income and expenses easier.
4. Would forming an LLC help me save on taxes?
We are not able to offer legal advise to decide whether or not you should form an LLC. Below are some resources to help you make that determination.
Limited Liability Company Taxes
Choosing Your Business Structure: 5 Types of Businesses to Consider
Filing Business Taxes for an LLC for the First Time
Since you have a full time job if you do not want to make estimated payments, you could increase the withholding you are having your employer take out of your check to cover the net income earned on the gig work.
1) Do I need to pay quarterly estimated taxes? How much and when?
Yes, you likely need to pay quarterly estimated taxes if you expect to owe $1,000 or more in taxes for the year
You can often increase your withholding from your W-2 job to cover the tax liability from your side gig, effectively "paying" your estimated taxes through your regular paycheck. Use the IRS Tax Withholding Estimator tool online to help you figure out how much extra to withhold. This can often be simpler than making separate quarterly payments.
IRS article: A guide to withholding, estimated taxes and ways to avoid the estimated tax penalty
TurboTax help article: https://turbotax.intuit.com/tax-tips/self-employment-taxes/myths-about-quarterly-taxes-for-the-1099-tax-form/L46qZt376
2) What should I be tracking for deductions?
For your aquatics training courses, you'll be able to deduct "ordinary and necessary" business expenses on Schedule C, Profit or Loss from Business. Some of the common expenses are supplies, equipment, advertising, training & certifications, work related uniforms, Mileage expenses if you used vehicle for business.
3) Should I open a separate bank account for my side gig?
Opening a separate bank account for your side gig is highly recommended. It makes tracking income and expenses for your Schedule C much, much simpler. All your business transactions are in one place, avoiding the need to sift through personal statements. In case of an IRS audit, having a separate account makes it clear what money is business-related versus personal.
4) Would forming an LLC help me save on taxes?
For federal income tax purposes, a single-member LLC is typically a "disregarded entity" by default. This means the IRS treats it the same as a sole proprietorship. Your income and expenses from the LLC are reported on Schedule C of your personal tax return (Form 1040), and you still pay self-employment taxes. So, for federal income tax, you're taxed just like a sole proprietor.
@ljb322 Thanks for the question!!
Thanks! What if I missed the April 15 and June 15 quarterly payments already? Would I need to submit those missed amounts along with my Sept. 15 payment?
This is really good to know! If I file married-filing jointly, does that affect things at all?
You should make the payment as soon as possible. I would not wait till September 15th to make the payment. Alternatively increase your withholdings
Yes, if you missed the April 15 and June 15 quarterly estimated tax payments for your self-employment income, you should generally pay those missed amounts along with your September 15 payment or as soon as possible.