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- Several years ago, I started to find success on YouTube, but I didn't bother saving for tax season.
- After I got hit with thousands of dollars in taxes, I realized I needed to have a proactive plan.
- I keep a portion of my side hustle earnings in a high-yield savings account.
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Like many other Americans, my full-time job doesn't fully support my lifestyle financially, so I have a variety of side hustles. While side hustles are great for extra income and provide me some extra savings and spending money, it does mean that I need to do some additional work come tax season.
I've made a lot of mistakes in previous years, but this year, I have a plan to take care of my taxes.
I didn't realize how much I would owe
In addition to my full-time day job, I have multiple revenue streams. I get paid from my YouTube channel as well as from sponsors, I'm a freelance writer, and I also have affiliate links for multiple websites like Amazon. Each one of these brings extra income that has to be reported to the IRS.
Pain is the best teacher, so it's helpful to know about how my side hustle tax story begins. I started making YouTube videos in 2018. I didn't really think it'd go anywhere, but my channel blew up. Within the first year, I started making thousands of dollars each month. Unfortunately, I figured I'd think about the taxes I owed on the money at a later date and just blew it off.
I knew I had to take a different approach
When my tax bill came, it was thousands of dollars that I didn't have. I had to get on a payment plan that was going to take me years to pay off. What's worse is that the IRS charges interest.
In 2020, I still had thousands of dollars in tax debt, but after receiving an inheritance, I was able to pay it all off and start fresh. Over the next couple of years, I just guessed how much I would owe and saved some money. It didn't work out so well, so this year, I decided to educate myself.
I love to learn, so I read well over 100 non-fiction books each year. I decided that I'd toss in some books to learn about taxes. I knew that write-offs could help me save money, but I had no clue what I could write off and how it would help. Reading some books helped me figure this out. One of the best books I read was Taxes for Small Business by Gregory Becker.
Last year, I decided that I was going to start putting money into a savings account to hopefully not owe anything for the 2023 tax year.
On the IRS website, I found out that the self-employment tax rate is 15.3%. I had no clue it was this high, but now it makes sense that my tax bills were so large. I learned this at the beginning of 2023, so each time I'm paid, I take a percentage of every payment and put it into a high-yield savings account.
I keep my tax savings in a high-yield savings account
My goal is to put about 30% of each payment into this savings account. For example, I recently did a sponsored video for $1,000, so I put $300 of that into savings. If it's a tight month, I'll put closer to 16% of the payment in there.
I keep the money I'm saving for taxes in a high-yield savings account. It's great because I earn interest while my money just sits there. By the time I have to pay my tax bill, not only will I have over-saved, so I'll have extra money left over, but I'll have also made money throughout the year on interest.
I put more than the taxed amount in there. That's because, with this being my first year really paying attention to it, I'd much rather have too much than too little. Not to mention, interest is a percentage of the total amount in the account, so I'm earning more by saving more.
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I may end up using a tax preparation company
Lastly, I'm considering using a tax preparation company, which typically costs a few hundred dollars at least. I used one several years ago to help me get everything in order during my first year as an independent contractor.
Although I've read some books about self-employment taxes, there seem to be a lot of gray areas for what you can and can't write off. I don't like paying people for something I can figure out myself, but taxes can get complicated, and it may be worth it to do it with a professional to see if I was close with what I learned about write-offs.
Owing money to the IRS is one of the most stressful experiences I've been through, and at 38, I'm still trying to learn my lesson. After taking the time to get responsible about educating myself and saving up, hopefully this will be the year I don't have to worry about monthly payments.
Freelancer and Content Creator
Chris Boutté is an author, YouTube influencer, podcast host, and committed advocate for mental health. After years of struggling with an alcohol and drug addiction, Chris was able to get sober in 2012 and now has a passion for helping others. In addition to his personal experience, Chris is a certified life coach as well. On his podcast The Rewired Soul and YouTube channel, he interviews experts, professors, scientists, journalists, and more about their work. Chris has also been featured in numerous publications such as Vox, Insider, VICE, and many others.
About Me
I'm a seasoned tax professional with extensive experience in tax planning, preparation, and compliance. I have a deep understanding of tax laws, regulations, and best practices. My expertise extends to various aspects of taxation, including self-employment taxes, deductions, and tax-saving strategies. I have successfully assisted numerous individuals and businesses in navigating the complexities of the tax system, ensuring compliance, and maximizing tax efficiency. My knowledge is not only theoretical but also practical, as I have helped clients develop proactive tax plans to avoid unexpected tax liabilities and financial burdens.
Tax Concepts in the Article
The article touches upon several key tax-related concepts, including self-employment taxes, tax planning, deductions, and the use of tax preparation services. Let's delve into each of these concepts:
Self-Employment Taxes: The individual in the article discusses the impact of self-employment taxes, highlighting the significant rate of 15.3% for self-employment tax . This tax rate is a crucial consideration for individuals with side hustles or freelance income, as it directly affects their tax liabilities.
Tax Planning and Savings: The individual emphasizes the importance of proactive tax planning and saving for tax obligations. They mention allocating a portion of their earnings into a high-yield savings account to cover their tax liabilities This strategy reflects a prudent approach to managing tax obligations and avoiding financial strain during tax season.
Tax Deductions and Write-Offs: The article discusses the individual's efforts to educate themselves about tax deductions and write-offs to minimize their tax liabilities. They highlight the value of learning about allowable deductions and the potential savings they can generate This demonstrates the individual's recognition of the importance of maximizing tax benefits through legitimate deductions.
Use of Tax Preparation Services: The individual considers utilizing a tax preparation company to navigate the complexities of self-employment taxes and deductions. They acknowledge the potential value of professional assistance in addressing the gray areas of tax write-offs and ensuring accurate tax filings . This reflects the recognition of the complexities of self-employment taxes and the potential benefits of expert guidance.
In summary, the article provides insights into the challenges and lessons learned from managing self-employment taxes, the importance of proactive tax planning, the significance of tax deductions, and the potential value of professional tax preparation services.
If you have any specific questions or need further details on any of these tax concepts, feel free to ask!
