Filing Taxes as W2 Employee with New Sole Proprietorship Business

The combination of W2 employment and sole proprietorship income is pretty common! Here's how to approach this: First, understand that your W2 job already has taxes withheld, while your sole proprietorship income doesn't. That's why you need to make estimated tax payments on the business income. For your Q4 payment, you have a couple options. One approach is to increase your W2 withholding at your nursing job by submitting a new W-4 to your employer requesting additional withholding. This can cover the taxes on your side business and might be simpler than making separate estimated payments. Alternatively, you can make an estimated payment just on your business income. Take your business revenue, subtract legitimate business expenses, and that's your profit. You'll owe self-employment tax (about 15.3%) plus income tax on that amount. The 35% you're setting aside is actually a good rule of thumb for most people.

After struggling with similar situation last year (teacher with photography side business), I found an amazing tool that saved me so much stress - https://taxr.ai actually helped me understand how to properly calculate my estimated payments across both income streams. It analyzed my W2 withholding patterns and business income to give me a much more accurate picture than those generic calculators that were giving me heart attacks with their estimates!

Just wanted to update - I was the skeptical one earlier but decided to try taxr.ai since my situation is similar (W2 plus freelance income). Wow, what a difference! The tool immediately showed me I was actually OVER-withholding when combining my W2 job and estimated payments. Apparently my W2 withholding was already covering more than I realized. Ended up adjusting my Q4 payment down by almost 40% and still covered everything properly. The visualization of the two income streams and how they affect each other taxwise was super helpful.

If you're having trouble figuring out your tax situation, calling the IRS can actually help! They have specialists for self-employed taxpayers. But getting through to them is a nightmare - I wasted 3 hours on hold last month before giving up. Then I found https://claimyr.com which got me a callback from the IRS within 45 minutes instead of waiting on hold all day. They have a demo video at https://youtu.be/_kiP6q8DX5c that shows how it works. The IRS agent walked me through calculating my estimated payments with both W2 and self-employment income. Way better than guessing or using those online calculators!

Had to come back and eat my words. After my skeptical comment about Claimyr, I figured I'd try it since I was getting nowhere with my tax questions. Used the service yesterday and got a call back from the IRS in about 30 minutes. The agent spent almost 20 minutes explaining exactly how to calculate my estimated payments with mixed income, and showed me that I qualify for a safe harbor provision I had no idea about. Turns out if I pay 100% of what I owed last year (or 110% if my AGI was over $150k), I'm protected from underpayment penalties even if my income increased. This literally saved me hundreds in Q4 payments I was about to make unnecessarily.

Don't forget you'll need to file Schedule C for your sole proprietorship along with your regular 1040. Also, you should be tracking ALL your business expenses - mileage to client locations, any equipment you buy, advertising, insurance, etc. Those all reduce your taxable business income! I'd recommend keeping a separate business checking account if you haven't already. Makes it way easier to track income and expenses come tax time. And yes, 30-35% set aside is generally good but remember you're paying both income tax AND self-employment tax (15.3%) on that business income.

Is anyone else getting ridiculous numbers from the IRS estimated tax calculator? When I enter my W2 income plus my side gig, it's telling me I need to pay like 42% of my business income for Q4 alone! That can't be right...

Don't forget that as a sole proprietor you can deduct half of your self-employment tax on your 1040! It's an adjustment to income so you get it even if you don't itemize deductions. A lot of people miss this one.

As someone who went through this exact same situation last year (RN with a photography side business), I totally get the confusion! Here's what I learned the hard way: The key is understanding that your W2 withholding might already be covering more than you think. Don't just look at raw percentages - you need to consider your effective tax rate across both income streams. One thing that helped me was doing a "tax projection" using Form 1040ES worksheets instead of relying on online calculators. Take your expected total income from both sources, subtract your standard deduction, and calculate the tax on that amount. Then subtract what's already been withheld from your nursing paychecks to see what you actually still owe. Also, make sure you're maximizing business deductions! As a personal trainer, you can likely deduct equipment, continuing education, professional liability insurance, mileage to clients, and even a portion of your phone bill if you use it for business. These deductions can significantly reduce your taxable business income. The 35% you're setting aside is probably conservative, which is good! Better to overpay and get a refund than underpay and face penalties. But you might find you need less once you factor in all legitimate deductions.