The Roanoker Nov/Dec 2024 - 40

financial
EXECUTING YOUR
ACTIVITY
Engaging in various side activities to supplement your
income is common, whether it's a short-term gig during
the festive holiday period or a regular source of additional
earnings throughout the year. This means that setting up
an LLC for your side income is not a mandatory step.
Most people creating extra income beyond their normal
jobs act as sole proprietors. However, it's crucial to note
that the income you've earned from these activities has
not been reported to the IRS, which implies that taxes
have not been withheld from it, unlike a traditional job
where taxes are automatically deducted through a payroll
system. As a result, companies that have paid you for
these services will likely report this income on a Form
1099, distinct from the Form W-2 provided by a standard
payroll department. This difference underscores the
importance of understanding your tax obligations and
ensuring that all sources of income are accurately reported
to comply with IRS regulations.
To clarify, here is an example. Tom helped Rebecca
with a few items around the house. Switching out lights
and ceiling fans, putting together a few pieces of furniture,
setting up her TV, cleaning the garage and taking
items to the dump. This activity took him all weekend.
Rebecca gave him $1,500 for his hard work and time,
not to forget the amazing service he provided for her.
Rebecca wrote a check to Tom for $1,500. Tom deposited
this into his household joint checking account. This is acting
as a sole proprietor. Again, many people creating extra
income beyond their normal job act as a sole proprietor.
If Tom found five people to help and made $1,500
per household, he made $7,500 to report as income this
year. He reports this income on his tax return and hasn't
accounted for this income as far as taxes are concerned.
Be sure as you receive the income to set back a percentage
for tax time. This percentage is based on your household
tax bracket.
It is important to know how business structures differ.
Some key terms are as follows:
* Sole Proprietorship - This is the most common
type of business structure. You are operating in
your name, as well as collecting income in your
name.
* Single-Member LLC - Although not the most
common, it is the most well-known structure. With
this, you are operating under the LLC name, as
well as earning income under the LLC name.
* Multi-Member LLC - When two or more people
own and go into business together.
* Corporation - Used for full-time business
activities.
While 54% of Americans are creating additional
income, it is important to know how these additional
revenue sources impact your tax return. Keep an eye on
your total household income, as this defines your tax
bracket. Having a tax accountant at hand is paramount
to tax mitigation success.
These creative side hustles offer a great way to boost
your income, whether you're saving for the holidays or
planning ahead for the year. With a little effort and the
right strategy, you can ease financial stress and enjoy extra
cash in your pocket. I
40 november/december 2024
TheRoanoker.com
http://www.TheRoanoker.com
The Roanoker Nov/Dec 2024

Table of Contents for the Digital Edition of The Roanoker Nov/Dec 2024
