Money Matters- Extra Income and How it Impacts your Taxes

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Published: Jul. 6, 2022 at 8:23 AM EDT
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COLUMBIA, S.C. (WIS) - Many people have started taking jobs to make ends meet, but how do we know how this affects our taxes?

Josh Bradley with Capital City Financial says that when you work with an employer, they take care of most of your withholding for taxes and once you started working for yourself, the withholding becomes your responsibility.

A lot of people don’t know that doing this opens you up to more taxes whether it be additional medicare or social security. You need to be prepared to pay additional taxes.

How do we pay these taxes?

Bradley says that at the end of the year, you have to calculate your income from your business and pay the taxes separately. A lot of people don’t do it until the year-end and can sometimes find that they’ve underpaid which results in having to pay penalties and interest to the government.

Are there ways to limit the taxes you pay on this income?

The best thing to do is to keep track of this income and pay those taxes on a quarterly basis or withhold extra from your current job. You also want to record all of your expenses like home office, gas, supplies, etc. because those can lower your taxes.

Make sure you save at least 20 to 30 percent of all your income to cover those taxes.

You could also contribute additionally to your retirement account to reduce your taxes.

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