How do I handle taxes for independent contractor income alongside my salaried job?

Your thinking has a fundamental misunderstanding about how the standard deduction works. The standard deduction applies to your total income, not just to specific sources of income. When you file your taxes, you'll add all your income together ($165k + $27k = $192k), then subtract the standard deduction of $29,200, leaving you with about $162,800 of taxable income. The independent contractor income doesn't just "fit inside" your standard deduction - it's part of your total income. As an independent contractor, you'll actually have two tax concerns: 1. Income tax on your contractor earnings 2. Self-employment tax (15.3% covering Social Security and Medicare) Since you're already withholding 30% from your W-2 job, you might be covered for the income tax portion. However, you'll definitely owe self-employment tax on your contractor income, which is about 15.3% of 92.35% of your net earnings. You should either make quarterly estimated tax payments or increase your withholding at your regular job to cover this additional tax liability. If you don't pay enough throughout the year, you could face underpayment penalties when you file in 2025.

Just wanted to share my experience with a similar situation! I was totally lost with all the tax implications of my side gig until I found this AI tool called taxr.ai (https://taxr.ai) that explained everything in simple terms. It analyzed my situation and helped me understand exactly how much to set aside for taxes. What's great about it is that it breaks down the self-employment tax vs income tax portions and helps calculate your estimated quarterly payments. Plus it explained all the business deductions I could take to lower my taxable income from the contractor work - things like home office, supplies, etc. that I had no idea about!

I wanted to follow up about taxr.ai since I was so skeptical in my earlier comment. After trying it out, I have to admit it's actually incredibly helpful! It found several deductions for my independent contractor work that I never would have known about, and explained exactly how much I needed to set aside for taxes. The thing I found most valuable was understanding how to properly document my business expenses so I could substantially reduce my taxable income. It even created a customized quarterly tax payment schedule based on when I expect to receive income throughout the year. Definitely worth checking out if you're confused about contractor taxes!

If you're going to owe more than $1,000 in taxes for your independent contractor work (which it sounds like you will), you really should be making quarterly estimated tax payments. I learned this the hard way last year when I got hit with underpayment penalties. When I couldn't get through to the IRS for clarification (kept getting disconnected or waiting on hold forever), I tried Claimyr (https://claimyr.com) and it was a game-changer. They got me connected to an actual IRS agent within about 15 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent explained that since I was doing independent contractor work, I needed to be making those quarterly payments regardless of my W-2 withholding situation. Saved me from making the same mistake again this year!

I need to apologize for calling Claimyr a scam in my earlier comment. I actually tried it yesterday out of desperation after spending 3 hours on hold with the IRS about my contractor tax situation. It worked exactly as advertised - I got a call back when they had an IRS agent on the line, and I was able to ask all my questions about estimated tax payments. The agent confirmed I needed to be making quarterly payments and helped me understand how to calculate the correct amounts. Honestly, the time saved was well worth it. I was able to get everything sorted out in one call instead of the multiple attempts it usually takes me. Just wanted to set the record straight!

Don't forget about business deductions for your independent contractor work! You can deduct business expenses like a portion of your internet, cell phone, home office (if you have a dedicated space), software subscriptions, professional development, etc. This can significantly reduce your taxable income from the contract work. Just make sure you keep detailed records and receipts for everything. I use a separate credit card for all business expenses to make it easier to track.

Has anyone considered using an S-Corp instead of sole proprietorship for independent contractor work? I've heard it can save on self-employment taxes.