Thanksgiving marks the official start of the holiday season. Friends, family, food, and those awkward office parties. Taking on a side gig or seasonal job can help you offset the expense of traveling over the holiday and picking up gifts for friends and loved ones. With any luck, that side gig can also turn into a year-round means of earning additional money to cover expenses or to finally start that savings account. Here are some tax tips to keep in mind to help you make the most of your seasonal job:
Keep track of tip income. One great way to earn some extra cash is to pick up some shifts as a bartender, server, or as an on-demand driver for Uber or Lyft. You’ll not only score some extra cash but also some tips in the process.
Before you get that first tip, set up a spreadsheet on an app or in a program such as Excel. You’ll need to keep careful track of your tips since the IRS requires you to report them as part of your gross income at the end of the year.
Watch for self-employment taxes. If you decide to work for yourself, be sure to take self-employment taxes into consideration when setting your rates. If you earn more than $400.00 in self-employment income, you’ll need to pay self-employment taxes. You’ll need to set aside 15.3 percent of your earnings to cover your self-employment tax.
Likewise, if you freelance for an employer, you’ll be classified as an independent contractor. For example, if you decide to do airport runs on behalf of Lyft or Uber, you’ll be working as an independent contractor since the company won’t be deducting payroll taxes from your pay. Same rule applies as if you were working for clients: you’ll need to pay self-employment taxes on earnings over $400.00.
Cover your possible tax bill. If you plan on working more than one side gig this holiday season, you may end up owing more tax than you originally estimated. The IRS requires you to report all income from all sources as part of your gross income for the year. If your employer is deducting payroll taxes from each of your checks, make sure they are deducting the right amount of taxes from each check.
If you’re working for a large organization, check with the payroll department and adjust the withholding allowance on your W4 form if necessary.
Picking up a holiday side gig can help you offset those additional holiday expenses, but keep these tips in mind to avoid sticker shock on tax day. By recording all of your tip income, allowing for self-employment tax, and having the correct amount deducted from each employer paycheck, you’ll be face tax day with no last minute surprises…and additional money in your pocket.