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Level 2

When moonlighting turns into almost real money

At what point do I switch from putting money received for freelance work in my personal account, to tracking it separately as a business? I'm asking mainly for the sake of understanding taxes. Do I roll these into my personal taxes, or do I file separately? I suppose that makes it two questions.

 

Since March, I've earned a bit over $5,000 as a freelance editor. Most of it from a company that uses me as a freelance fill-in (and will be sending a 1099) and the other for a fiction author who uses me as a proofreader/editor (I don't know if she'll be sending out a 1099). I have a business license with the state of Washington.

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Best answer July 16, 2018

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Highlighted
Level 3

When moonlighting turns into almost real money

Hi @DJayne, great question!  First off, @EmilyCowan and @Anonymous made some great points to guide you, and separating personal and business is a must whether you are freelancing or running your own business full time. It will make everything (especially come tax time) much easier for you. 

 

If you already have a business license, it is clear this is not a hobby. You do not get a business license unless you are looking to gain a profit from your area of expertise. I suggest opening a separate bank account for your business. This will allow you to track your freelance income and expenses without intermingling income from your other job and personal expenses. If you do this, creating a Schedule C for your Form 1040 federal tax return and equivalent state return will be a painless process. Your income (loss) from this business will go on the "business income" line separate from your "wages" on the 1040.

 

Keep in mind no taxes are withheld on this income, so you will owe Uncle Sam SE Tax, which is 15.3%. The withholdings from your other job will help offset some SE Tax, so that is a plus! This is a very high-level view and you should consult with a tax advisor on specifics. Best of luck with your work!

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Level 2

When moonlighting turns into almost real money

The work for my writer friend is similar. She's a former co-worker from another company and is one of a handful of folks who've been trying to help me get back in with that co. (I've been laid off six times in the last few years...ouch!)

I'd been working mainly from home for almost two years on contract and loved it. Tacking on a couple of hours a day of freelance is easy when you don't have a commute to deal with. My days when I have a full-time remote gig are broken up into wake-up tasks (pets, shower, coffee, bfast, personal administrivia), work, lunch break, work, personal (including freelance). Depending on the work flow, I'll schedule in lunch with a friend, a mid-day hike, or some other mid-day break to keep my mind from getting bogged down. Or will move work to the evenings and play "hooky" during the day just for the deliciousness of it.

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Level 2

When moonlighting turns into almost real money

Thank you, Peter - that's very helpful and nicely concrete advice. I've been careful to track all of my freelance income, but have been mingling it right into the same account as my regular income. I'll change that going forward and "pay" myself out of the business account. I'll also, as previously mentioned, start moving some money into an account to pay taxes out of. 

I got the license in 2015 when I picked up a very short contract that I was initially told was a w2 (and I negotiated it as such), but turned out to be a 1099 (and the stinkers wouldn't increase the rate, but I was desperate so took it). I've kept it active just in case.

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Anonymous
Not applicable

When moonlighting turns into almost real money

Hey @DJayne,

 

There are many accountants here in the community who can provide a definitive answer, but since you've indicated that you will be filing a 1099 and have a business licence (which identifies business-only income and expenses), you've already sort of answered your own question :).

 

You should always separate business income from your personal equity that isn't related to your work. More than anything, when tax-time rolls around, you'll need to be able to identify what income came from what source. If you are making $2,000 a month aggregate, what part of that is from your regular 9-5 and what comes from your freelance work? And how much have you already taken out for taxes from each stream of income? If it's all mixed together, you won't be able to file your 1099 correctly. 

Highlighted
Level 7

When moonlighting turns into almost real money

Hey @DJayne - welcome to QB Community! This is a fantastic question :smileyhappy:

 

First of all, congrats on what sounds like your first 1099 (woot!). If you're receiving one, then you are considered an independent contractor by the state of Washington. Whether you'll be paying taxes on your income this year depends on whether you meet the state's $12,000 threshold and, if you've already racked up nearly $5,000 since March from your 1099-issuing client, then I'd say it's a strong possibility.)

 

Whether you're freelancing strictly as a side gig or hoping to build the business to full-time self-employment, separating out personal from professional funds now will save you a world of headache come tax time. But I'm no tax professional, so don't take my word for it! @Peter_G_Stone, @Anonymous, @JenPM - any thoughts for DJayne on getting started?

 

(In the meantime, here are some great tips from QB Community member @lynda on managing self-employed taxes.)

 

So how did you end up freelancing this year? Was it a conscious choice to work for yourself or did an opportunity present itself that you just couldn't pass up?

 

Highlighted
Level 2

When moonlighting turns into almost real money

Thanks, EmilyC - That's a big help, especially the information about the break-point for having to file. I've kept separate records, but have deposited all of the income in my personal account. I'll start moving some back over to a business account to cover taxes, just in case.

The freelancing started after a layoff. It was a bit of "how can I supplement the unemployment checks?" and "how much could I make on my own?" The biggest part of my freelance income is from the company that laid me off (really nice folks, and the director was almost crying as he told me they couldn't keep me). They didn't have enough work to keep me as a full-time employee, but were going to have to find a freelancer to cover gaps, so I offered my services.

Highlighted
Level 7

When moonlighting turns into almost real money

Thanks for sharing that, @DJayne! I've worked as a freelancer for many years and I totally get it. I'm glad you're on such good terms with your former employer (and is that how you landed the proofing gig for the fiction writer as well?). 

 

One of the biggest adjustments for me was the transition to working from home - or at least not in a traditional office setting. I've found that working from home really suits me - LOL, maybe too much! - but it's not for everyone. How's that part going for you? How do you structure your time?

Highlighted
Level 3

When moonlighting turns into almost real money

Hi @DJayne, great question!  First off, @EmilyCowan and @Anonymous made some great points to guide you, and separating personal and business is a must whether you are freelancing or running your own business full time. It will make everything (especially come tax time) much easier for you. 

 

If you already have a business license, it is clear this is not a hobby. You do not get a business license unless you are looking to gain a profit from your area of expertise. I suggest opening a separate bank account for your business. This will allow you to track your freelance income and expenses without intermingling income from your other job and personal expenses. If you do this, creating a Schedule C for your Form 1040 federal tax return and equivalent state return will be a painless process. Your income (loss) from this business will go on the "business income" line separate from your "wages" on the 1040.

 

Keep in mind no taxes are withheld on this income, so you will owe Uncle Sam SE Tax, which is 15.3%. The withholdings from your other job will help offset some SE Tax, so that is a plus! This is a very high-level view and you should consult with a tax advisor on specifics. Best of luck with your work!

View solution in original post

Highlighted
Level 2

When moonlighting turns into almost real money

The work for my writer friend is similar. She's a former co-worker from another company and is one of a handful of folks who've been trying to help me get back in with that co. (I've been laid off six times in the last few years...ouch!)

I'd been working mainly from home for almost two years on contract and loved it. Tacking on a couple of hours a day of freelance is easy when you don't have a commute to deal with. My days when I have a full-time remote gig are broken up into wake-up tasks (pets, shower, coffee, bfast, personal administrivia), work, lunch break, work, personal (including freelance). Depending on the work flow, I'll schedule in lunch with a friend, a mid-day hike, or some other mid-day break to keep my mind from getting bogged down. Or will move work to the evenings and play "hooky" during the day just for the deliciousness of it.

View solution in original post

Highlighted
Level 2

When moonlighting turns into almost real money

Thank you, Peter - that's very helpful and nicely concrete advice. I've been careful to track all of my freelance income, but have been mingling it right into the same account as my regular income. I'll change that going forward and "pay" myself out of the business account. I'll also, as previously mentioned, start moving some money into an account to pay taxes out of. 

I got the license in 2015 when I picked up a very short contract that I was initially told was a w2 (and I negotiated it as such), but turned out to be a 1099 (and the stinkers wouldn't increase the rate, but I was desperate so took it). I've kept it active just in case.

View solution in original post

Highlighted
Level 7

When moonlighting turns into almost real money


@DJayne wrote:

My days when I have a full-time remote gig are broken up into wake-up tasks (pets, shower, coffee, bfast, personal administrivia), work, lunch break, work, personal (including freelance). Depending on the work flow, I'll schedule in lunch with a friend, a mid-day hike, or some other mid-day break to keep my mind from getting bogged down. Or will move work to the evenings and play "hooky" during the day just for the deliciousness of it.


 

Gahhh, I'll have what you're having! You're clearly much better at this whole work-from-home thing than I am :smileylol: Our content chief @WillowOlder works from home as well and manages to take mid-day hikes most days. I could learn a thing or two from the both of you!

 

You know who's also really rocking the well-rounded self-employment thing? @lynda (quoted in the self-employed taxes article I linked to earlier) - bookkeeper by morning and yoga instructor by...very early morning? 

 

Hooray for no commute!!

Highlighted
Level 7

When moonlighting turns into almost real money

p.s. Extra points for "personal administrivia" :smileyhappy:

Highlighted
Community Champion

When moonlighting turns into almost real money

Yay! @DJayne For getting off to  a better start than most of us do.  You may want to consider using QB online Self-Employed for tracking your income and tracking your estimated taxes.  It is a product designed to fit your needs. You can even invoice your customers with it and track the expenses.  Pretty easy to use.  

 

I second the advice of adding a bit extra to the withholdings at your other job.  That is what I do for my side “fun” job of teaching yoga.  I added extra withholding to cover my 1099 job.

 

Congrats on your new endeavor and getting going by being proactive!  Good luck!🍀                                                                                                                                                                       

Highlighted
Community Champion

When moonlighting turns into almost real money

Thanks @EmilyCowan!

 

Yoga teacher by nights and weekends. The great thing about it is it gets me off my chair, moving and out of the office away from the computer screen.  Gets me with people.  I love the yoga job like I love this forum, it allows me to help others.

 

Yoga became part of my life from my “over-running” days.  Running to extreme came from a very unhappy time in my life.  I literally became Forrest Gump. Ran away my troubles.  And it worked, till the knees said “no”.  Yoga came into my life and healed all the hurting parts. The physical and the non-physical.  I wanted to learn more. From that a teacher was born.   I wanted everyone to know how this magical practice heals.  So logically, teaching yoga seemed the right path.  Hard to imagine that managing a bookkeeping practice and teaching yoga would work so complimentary, but they do!

 

I love @DJayne story!   She is spot on with doing the right things, planning, thinking ahead!

 

@WillowOlder doing mid day hikes in nature sounds heavenly.  We all need a bit of nature time, don’t we?

 

What do you do @EmilyCowan to take a break from that computer screen?  :cathappy:

 

 

Highlighted
Level 2

When moonlighting turns into almost real money

Thanks, @lynda - I've already signed up for QB Self-employed, and manually added all of the income transactions from my freelance gigs this year. I have no expenses that will pass muster with the gov, though. My office space is used for more than just work, my Internet link is the household link, my computer does double-duty, etc... And my needs are simple enough that it doesn't make sense to buy separate stuff just for my freelance work.

QB told me how much I "owe" in taxes so far, so that's a big help right there!

 

 

Highlighted
Level 7

When moonlighting turns into almost real money


@DJayne wrote:

I have no expenses that will pass muster with the gov, though. My office space is used for more than just work, my Internet link is the household link, my computer does double-duty, etc... And my needs are simple enough that it doesn't make sense to buy separate stuff just for my freelance work.

QB told me how much I "owe" in taxes so far, so that's a big help right there!



Oho, @DJayne - you might be surprised! Here's a Complete List of Self-Employed Expenses and Tax Deductions for your reading pleasure :smileyhappy:

 

Totally psyched you're giving QuickBooks Self-Employed a try!

Highlighted
Level 7

When moonlighting turns into almost real money


@lynda wrote: 

What do you do @EmilyCowan to take a break from that computer screen?  :cathappy:


 

I'm a runner as well, @lynda - first thing in the morning, usually, although there's a strong argument to be made that I should try breaking up my workday with a run in the middle. (Eight hours of butt-in-seat sucks whether you put in your 10K that morning or not.) Weather is a major factor. Today, for example, it'll be 85 degrees and super-humid around noon today. No way, Jose! But in the winter I frequently wait until after 11 AM to give the air temperature some time to warm up.

 

Finding some outlet for daily stress relief is key, regardless of what floats your boat. @Peter_G_Stone and @caronsbeach2 have shared photos of some truly gorgeous vistas just a mile or two from their desks - talk about inspiring!

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