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Frequently Asked Questions
What is Self-Employment (SE) Tax?
Self-employment tax is the tax that covers Social Security and Medicare taxes for individuals who work for themselves. It's 15.3% of your net earnings (12.4% for Social Security and 2.9% for Medicare). When you work for an employer, they pay half of these taxes, but when you're self-employed, you're responsible for both the employee and employer portions. However, you can deduct half of your self-employment tax when calculating your income tax, which helps reduce your taxable income.
What are Business Write-offs?
Business write-offs (also called deductions) are legitimate business expenses that you can subtract from your gross income to reduce your taxable income. Common write-offs for side hustlers include: software subscriptions, equipment and tools, home office expenses, internet and phone bills (business portion), travel expenses, professional development, and advertising costs. Keeping good records of all your business expenses is crucial for maximizing your deductions and reducing your tax liability. Remember, expenses must be "ordinary and necessary" for your business to be deductible.
Why does my W-2 income matter for my side hustle taxes?
Your W-2 income matters because the US tax system uses progressive tax brackets - the more you earn overall, the higher your marginal tax rate. Your side hustle income is added to your W-2 income, and the total determines which tax bracket you fall into. This means if you already earn a good salary from your full-time job, your side hustle income will be taxed at a higher rate than if you had no other income. This calculator takes your W-2 income into account to provide a more accurate estimate of your total tax liability.
How much should I save for taxes?
A good rule of thumb is to save 25-30% of your net side hustle income for taxes, though the actual amount varies based on your total income, filing status, and state. Use this calculator to get a personalized estimate. It's also wise to make quarterly estimated tax payments to avoid underpayment penalties. The IRS requires you to pay estimated taxes if you expect to owe $1,000 or more in tax for the year and your withholding doesn't cover at least 90% of your total tax liability for the current year or 100% of the tax shown on your prior year's return.
Is this calculator accurate?
This calculator provides estimates based on 2024/2025 tax rates and rules. It's designed for educational and planning purposes to help you understand your tax obligations. Actual tax calculations can be more complex depending on your specific situation - factors like other deductions, credits, retirement contributions, and more can affect your final tax bill. For exact tax calculations and personalized advice, please consult with a qualified tax professional or use tax preparation software like TurboTax, H&R Block, or FreeTaxUSA.