Do you need to make quarterly payments for side hustle income? I heard somewhere that you need to if you'll owe more than $1,000 at tax time, but not sure if that's true.

Yes, that $1,000 threshold is correct. If you expect to owe more than $1,000 in taxes when you file your return, you should make quarterly estimated tax payments to avoid an underpayment penalty. For side hustles, a good rule of thumb is to set aside about 30% of your profit for taxes (covers both income tax and self-employment tax for most people). You can use Form 1040-ES to calculate and pay your quarterly taxes. The due dates are April 15, June 15, September 15, and January 15 of the following year. Better to start paying quarterly now than get hit with a big bill plus penalties!

Thanks for the tip about the separate account! That actually makes a lot of sense. Do you have a recommendation for a good expense tracking app that's simple to use? I'm not the most tech-savvy person tbh.

I use QuickBooks Self-Employed and it's pretty straightforward even for non-tech people. It links to your bank accounts and credit cards, then lets you swipe expenses left or right to categorize them as business or personal. The basic version is like $7/month which is totally worth it for the headache it saves. If you want something free, even the basic version of Mint can work if you create tags for your different side hustles. But honestly, whatever you choose, the most important thing is consistency - spend 5 minutes every few days categorizing transactions while they're fresh in your memory!

That's exactly what I'm worried about! Did the IRS give any indication whether they're targeting specific industries or claim amounts? Our documents for 2021 were somewhat rushed (though legitimate), so I'm wondering if filing a more careful 2020 claim might actually trigger them to look at both years.

They didn't specify targeting criteria in our letter, but our CPA mentioned manufacturing and construction businesses seem to be getting more scrutiny lately, particularly those claiming over $200K total. From conversations with other business owners, it appears they're flagging claims with large differences between quarters or that used different qualification methods across quarters. Filing a 2020 claim now wouldn't necessarily trigger a review of your 2021 claim, but they might examine both if the 2020 claim raises questions. The key factor seems to be consistency in your qualification narrative and calculations between both years. If the story of how your business was impacted matches across both claims, that's better than contradictory explanations.

The standard penalty for an incorrect ERTC claim is 20% of the erroneous amount plus interest (currently around 7%). So if you overclaimed by $50k in 2021 but could legitimately claim $200k for 2020, you'd still come out way ahead even if penalized.

I just tried this and it says I'm almost perfectly on track for my withholding! According to the estimator, I'll get a small refund of about $120 if nothing changes with my income for the rest of the year. That's honestly a relief. Thanks for the suggestion - this was super helpful and easy to use. I've bookmarked it to check again if my income changes!

That's actually a really bad financial strategy. You could be putting that extra money into a high-yield savings account or investing it throughout the year. Even a basic savings account is paying 3-4% interest right now. Why give up that free money?

I like the partnership idea. We did something similar where we created a family LLC that held various family assets including some promissory notes. By careful allocation of the LLC interests and distribution provisions, we were able to effectively redirect income within the family while maintaining appropriate legal and tax structures.

From what I understand, there's no statute of limitations on the 6% excess contribution penalty. It continues to apply each year until you either withdraw the excess contribution or use up unused contribution room in a later year (if you start having earned income again). The sooner you fix it, the fewer years you'll pay the penalty. For a 2020 excess contribution that's still in the account, they'd potentially owe the 6% penalty for 2020, 2021, 2022, 2023, and 2024 by now.

Thanks for the info. That's really helpful. So basically they're accumulating a 6% penalty every single year this isn't fixed? That definitely means we need to address this ASAP rather than ignore it. Would they need to file amended returns for all those previous years to pay the penalties, or is there some streamlined process for handling this?

Did you have to create a whole new tax return just to file the 5329? Or is there a way to file just that form by itself? I don't want to redo my entire 2022 return just to add this form.