These days, it is common for people to have “side gigs” or “side hustles” that allow them to earn extra income or even the entirety of their income after a time. Often, these gigs come from acting as independent contractors for larger businesses like Uber or from selling hobby items online with sites like Etsy. While you may appreciate the income that these actions generate, you may not fully realize that you have become a small business owner.
Even when you perform duties for a larger company, if you are an independent contractor, you essentially still work for yourself. You provide a service for which people pay you, and you often get to set your own working hours. While this may seem like an ideal setup, you will want to remember that working for yourself has certain tax implications.
Because you work for yourself, you do not have an employer who is withholding your taxes from each paycheck. Though you may enjoy seeing the entirety of your pay in your bank account with each check, it is important that you remember to pay estimated or quarterly taxes throughout the year. If you do not, you could end up facing a substantial tax bill after filing your taxes and could even face penalties for not paying throughout the year.
For regular employees, Social Security and Medicare payments are typically paid out by the employer. However, for individuals working for themselves, these payments are known as self-employment taxes. As a result, you could end up having to pay over 15% more in taxes to cover these payments yourself.
As a small business owner, you do have the ability to deduct certain business-related expenses. Still, there is a fine line between what counts as a business expense and what counts as a personal expense in some cases. For instance, a rideshare driver may believe that car loan or insurance payments count as a business deduction, but if the driver also uses the vehicle for personal matters, the Internal Revenue Service may consider it a personal expense and not eligible as a business expense deduction.
Facing tax issues
Though working for yourself may be easier than ever, the tax implications are still complicated. You could find yourself under scrutiny by the IRS for missing tax payments or taking questionable deductions, and that can leave you in a difficult spot. When it comes to effectively handling your tax obligations as a small business owner, even with just a side gig, you may find it helpful to work with a Missouri tax attorney.