How to pay taxes on your side gig with TurboTax
Having a side job can make a world of difference throughout the year when it comes to additional income. But at tax time it can be confusing if you haven't planned ahead.
While you may have thought a side-gig was an automatic reason to visit a tax professional in person, that doesn’t have to be the case.
Millions of people are using tax preparation software to prepare their taxes each year. TurboTax has also seen an increase in the number of people who are self-employed or work two jobs, with 80% of those filing their taxes on TurboTax uploading a W-2 and 1099 form, according to Lisa Greene-Lewis, CPA with TurboTax.
More tax help:
5 biggest tax breaks for the self-employed
Work from home? This tax deduction may be for you
What qualifies as non-taxable income?
If you recently joined the freelance world, you’ll need a quick primer on the concept of “pay as you go.” The government collects taxes that are automatically held from your paycheck throughout the year, but if you are a freelancer, you most likely don’t have taxes withheld from your paycheck.
That means you need to pay an estimated tax each quarter, or face a whopper of a tax bill in the spring. If you aren’t sure what your estimated payments are, TurboTax will calculate the estimated payments and print out payments vouchers you can send to the IRS at each deadline.
For 2017 taxes the schedule is as follows, according to TurboTax:
• 1st Quarter (Jan. 1 - March 31): Payment due April 18
• 2nd Quarter (April 1 – May 31): Payment due June 15
• 3rd Quarter (June 1- Aug. 31): Payment due Sept. 15
• 4th Quarter (Sept. 1 – Dec. 31): Payment due Jan. 16, 2018
What if I haven't made quarterly payments on freelance work?
TurboTax will walk through questions about the user's freelance or side-gig work and figure out tax liability, and the estimated payments moving forward, according to Greene-Lewis.
She notes that it's important to account for increase or decreases in income and any expenses that may figure into the estimates.
"TurboTax, as well as QuickBooks Self-Employed, allows you to estimate your quarterly tax payments year-round," Greene-Lewis said. " (Be aware), your business deductions along with the other deductions and credits you’re eligible for may substantially reduce your tax liability and save you money for your business."
Here’s a quick primer on which TurboTax product is best for full-time freelancers or those with side gigs:
TurboTax Deluxe:
TurboTax Deluxe works for people who have a full-time job with a (W-2) and a side-gig. In TurboTax Deluxe, the user is prompted to choose the financial options that apply to them. The options range from college expenses or tuition 1098-T, to charitable donations and the self-employed form (1099-MISC).
If you work full-time and have a side gig, you’ll likely select the W-2 from your full-time job and the self-employed (1099-MISC).
TurboTax Self-Employed:
If you are working as a full-time freelancer or work in the on-demand economy like an Uber driver, TurboTax Self-Employed may be a good option for organizing and filing your taxes.
Turbo-Tax self-employed includes the tool ExpenseFinder, which can help self-employed users uncover tax-deductible business expenses, according to Greene-Lewis. The ExpenseFinder connects to the user's bank or credit card account and can find transactions that are likely self-employment-related expenses like gas mileage and office supplies.
According to Greene-Lewis, TurboTax found that ExpenseFinder can help users uncover thousands in tax-deductible business expenses, thus saving the self-employed several thousand dollars on their taxes.
While the Deluxe and Premier products allow users to claim their income, the products do help users to uncover tax-deductible business expenses.
"TurboTax Self-Employed is best for self-employed taxpayers whether they have one freelance job or multiple since they get the benefit of uncovering business deductions they didn’t know were possible," Greene-Lewis said."They also get a year of QuickBooks Self-Employed free, which will help them track their income and expenses, mileage and capture their receipts year-round."
Follow Mary Bowerman on Twitter: @MaryBowerman
