This transcript was generated from the episode audio and may contain minor errors.
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Hello, hello. Welcome back to Side Hustle School. My name's Chris Guillebeau. Have the privilege and honor of being your host. And today's episode is an important one.
It could save you from a dreaded tax headache, or at least make things easier when it comes to taxes. Nobody likes taxes, of course, but it's how the world works. So even if you live in a different country or jurisdiction, obviously there's some variance and such, but I'm gonna try to give you some advice that I think is helpful and applicable to most people, let's say. So we're gonna hear from Leon in New York City. He's been successfully running his freelance business on the side, but now it's kind of like, oh, you know, it's good that I'm making money, but what do I need to do about this?
In his case, you know, he realized he had no idea how to handle the tax implications of his extra money. So regardless of where you live, regardless of your type of side hustle or business, what is the single most important advice that can save you from getting into trouble? Well, I've got it for you. It's actually pretty simple, and it can make a big difference in your life, your quality of life as well as your business. So I'll bring that to you in just 30 seconds.
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Hey Chris, I'm Leon from New York City, and I've been running a freelance business on the side for about a year. When tax season came around, I realized I had no idea how to handle the tax implications of my additional income. What's the single most important tax advice you'd give to a side hustler? I wanna avoid getting in trouble with the IRS.
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All right, Leon, first of all, congratulations on running the freelance business. I think that's the key point. Good work there. But yes, of course, let's talk about the tax implications and let's try to make it as helpful as possible and as broad as possible, okay? So of course, you should get some advice from a proper tax professional.
That is not me, just have to disclose that. But I will say the single most important advice, generally speaking, I would give to all side hustlers when it comes to taxes and finances is to separate your business and personal finances, make sure you have a separate bank account solely for your freelance income or whatever other income you've got and regularly set aside money for taxes if it is not automatically deducted. So just to break this down a little bit, again, separate bank account just makes it easier to keep track of what you've earned and spent, simplifies the whole process when it comes time for taxes, whether you're doing your own taxes or paying someone else, just having an account there just makes it so, so easy. And then secondly, setting aside money for taxes with every payment you receive, just kind of allocate a percentage, let's say 25%, could be more, could be less. But again, general recommendation, 25% to a separate tax account.
And that will make sure that you're never caught off guard when the actual tax time rolls around. So from there, things could be different depending on your type of business, your jurisdiction and such. But if you do those two things, you're gonna be much better off than anyone who doesn't do those things. If I remember going back like 25 years ago when I was first starting to work for myself, did not have a separate account, did not set aside money for taxes. Sadly, this is a common story.
Lots of people have been there and it caused me some trouble later. It was like, oh, it's so much more difficult to figure out how to account for everything. And then I didn't save money. And so then now I have a debt, which feels really weird because I thought I was making money and I was, but not all of that money belongs to me. There are taxes that need to be paid, federal, state, local, et cetera.
So those are the two most important things you do. If you do that, you're off to a great start. Leon, everybody else, good luck. I'm wishing you well. Let me know if I can be helpful, sidehustleschool.com/questions.
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