What Side-Hustlers Should Think About When It Comes to Taxes

Are you a side-hustler? I am certain your tax games can be a lot to think about. 

In this week’s episode of Tuesdays with Coach Mo Podcast, I am joined by Damari Gold, a Tax Advisor who discussed what you should consider when it comes to taxes on your side hustles.

Coach Mo Knows (a tip, a coaching question, and a bit of inspiration)

Tip:

Connect with our guest on social @DamariGold, or [email protected]

Coaching Question: 

If you have a side-hustle, what grade will you give yourself for how effective you are in managing your financial obligations, i.e.. budget, taxes, financial planning?

Inspiration

‘Life isn’t about finding yourself. Life is about creating yourself.” 

~ George Bernard Shaw

Episode Transcript

04:29 Damari: Well, my story and my journey has been long. And one of the things I always like to start off with is I am a first-generation American. So, the reason I start with that is because, like many of the young professionals that are listening to this, if you’re in that position or even if you’re not first-generation American, but someone that has maybe worked your way up into your career or looking to grow, a lot of times, we’re not taught depending on how we were brought up. We weren’t taught certain things. And taxation is one of them.

I was probably 23 when I decided to start school, to go to college. And then at that point, I was still deciding what career or what path, because a lot of times you start college and they’re like, “What do you want to do? What do you want to pick?” And it’s like, when you’re young, sometimes it feels like, man, that’s the rest of my life. What am I going to pick?

And so, I started with business. And then over time, I realized in 2008, 2009 is when the economy took a downturn back then, and I had an opportunity to do an internship with an acquaintance that had a tax office. And at that moment, I learned how to do taxes. I was learning and I just really liked it.

05:53 Monique: What do you think most people get wrong when it comes to doing their taxes?

05:59 Damari: A lot of it, I think, is hearsay without really having a cited source or just really credibility with what your research is. Unfortunately, there is so much information out there. We can appreciate TikTok and Instagram for a lot of the ability that we have to share information, but a lot of the information can sometimes be miscued or not understood correctly. And so, what happened is I think people have the illusion that, “Oh, I can do this. I can have this write-off,” or “I can have this thing,” without really understanding that there’s much more that goes behind it.

I wish I could say that taxation is always black and white. Some things can be, but not everything is. It’s very much law, what’s interpretation, how you can use it to your advantage, which I think a lot of people also misunderstand that we can use tax law and tax to our advantage. You just have to find the right professional that can help you do that. And so, I think going at it alone, there’s some things that you could DIY, but taxation is not one of them. I don’t recommend it.

07:13 Monique: Because of the changing, because of all the changes that get made on a constant basis?

07:16 Damari: Yes. Because of ever-changing, and then also, you don’t know what you don’t know. Every year I go to a seminar. So, every year I brush up on new tax laws, changes, what things we can do to help our clients. So, unless you’re doing that, I mean, I don’t know how you’re getting your updates. And it’s one of those things that, unfortunately, you can read on it, sure, but a lot of times it’s very difficult to understand.

07:46 Monique: And so, many young professionals that I know I coach who are working for large corporate, they’re looking to advance their careers and pursue their executive ambitions. And I’ve also come to discover that some who started out with that dream find they don’t want to maintain that dream. And as a result, they may say, “Well, I’m just going to work hard and fast and make as much money as I can while climbing the ladder,” but then at some point tapping out. Now, in that journey, I find that some young professionals will start a side hustle or they at least think about a side hustle. And my question to you is, what do they need to know? So, this individual who’s not completely all into a side hustle but tinkering on the sidelines, what do they need to know about taxes?

08:38 Damari: So, when you’re doing a side hustle, definitely what you need to know is number one, please do not open an LLC and think that you start one and that’s all you have to do. LLC is just like any other type of corporation or S corporation or anything like that do require certain registrations, certain things. I know in the State of Florida, you guys don’t have state tax, so it might be a little bit different. But a lot of times– I’m in California. And in California, we have very strict rules and guidelines for LLCs. And so, people forget that they need to file certain things when it comes to those things. So, that’s number one.

Number two, the other reason why not to start an LLC or start anything is because you want to make sure that you’re committed to doing this. The IRS can definitely see any investment that you make into starting a side hustle. It’s great because you can take advantage and possibly take that as a deduction in your taxes to offset some of your regular W-2 income. The thing is record keeping. So, oftentimes we start doing a side hustle or we invest in some and we don’t keep accurate records or we forget about it, we forget what we pay. Very important, if you’re going to take this serious that you do have accurate records or keep some separate checking account or something like that where you’re making this investment.

People sometimes start whether they know it or not. When you’re doing contracted work and that’s 1099 work, you get paid 1099 from somewhere, according to that, you’re considered a business at that point. So, whether you know it or not, you are now considered a sole proprietor. So, the same rules apply. Keep separate records, keep records of what you’re spending money on in order to conduct this consulting service, in order to conduct this work that you’re doing, and always speak to a tax professional prior to the year, especially if you’re making a good amount of money in your side hustle.

10:42 Monique: What’s a good amount of money?

10:44 Damari: I’d say probably a net profit of 10,000 or more. And that’s a net profit. So, after your expenses, you have a net profit of 10,000 or more, and you can– at that point, it can change your whole tax situation. So, if you’re making a good– let’s say you’re making a good income in your W-2 job. And now all of a sudden, you have an additional 10,000, 20,000, 30,000 in a side hustle, that can put you in a different tax bracket. So, if you’re not ready for that, and if you’re not paying your taxes for that, then you’re going to be left with a really nice surprise tax bill. And I don’t think you want that.

11:24 Monique: No. And that takes me to my next question about the resources or tools that every young professional should have in their toolkit, whether or not they do the side hustle. So, let’s think about both those groups, those who are just young professionals trying to get their money right and they’re climbing the ladder, and then those who are climbing the ladder and being deliberate in building that new app or have an Etsy site or what have you.

11:58 Damari: Yeah. These are definitely things you want to have in your toolkit, is keeping track of what you’re doing with your money. Not only just personal side hustle in business, everything you want to keep track of what you’re doing. Because one– I think a myth that a lot of possibly young people and even old people my age, or I’m not going to say older people, older millennials, that we could fall into is the idea or the thought that, “Oh, once we make a lot of money, we don’t have to track what we’re doing.” And that’s just not true. You want to be mindful of how you spend your money. You want to be mindful of what you’re doing. I personally believe that with the way inflation is right now, we are probably possibly seeing– we’re going to see another economic downturn. And if that’s the case, where are you for that?

And one of the biggest things I believe that people should have in their toolkit or in their mind is saving for some change. And so, always save money. I believe side hustles are great because you never know when something or a situation can propel you towards doing this. Like we talked earlier about my journey in 2008, 2009, I lost my– no, it was in 2006 when I lost my accounting job because of slowly– no, 2008, I’m sorry. Slowly, the economic downturn was happening at that time. And that’s when I lost my job. And it was very difficult to find work. And so, then at that point, I took the opportunity to work with that acquaintance in taxation. And had that not happened or had I not taken the opportunity or decided to say, “You know what, what do I have to lose?” it’s like, I’ll have knowledge, I’ll learn something. And if I don’t like it, I don’t like it. And that’s that. But I think too, it’s just that people are not being afraid of trying things that they could possibly like, or that they can possibly be good at.

14:02 Monique: Yeah. What you are espousing here for the uncertainty of life in our journey, right? I call it the three-legged stool for every young professional to be deliberate in how they build and reinforce their three-legged stool. Those three legs of the stool are relationships, right? Because whenever comes time to make a move, you want to have relationships at place of people giving you good advice and counsel and/or people opening doors for you.

The second thing is the finances. You have got to have your money in place, not only to be creating your nest egg longer term, but in the short term for the unexpected, and to be able to maintain your lifestyle and maintain your bills for a specific period of time, whatever that is, but being deliberate about that.

And then the last is self-awareness, which gets back to strengths that Damari mentioned earlier. Strengths is your personality, it’s your style. It’s all elements of self-awareness. I think the constant refining of those three elements of the three-legged stool to help with your long-term success, and you’re really reinforcing that.

So, when we talk about tools, I’m just curious, Damari, what for you are some of your favorite? You kept talking about the keeping track, keeping track, which is so important. I take it. You see a lot of people with the shoebox or whatever, like they just lumped in all bunch of–

15:35 Damari: Yes. I mean, that’s what I teach my clients, honestly, to tell you the truth. There’s two methods if you– well, not two methods, but you can use– I used the calendar method. I’ve used this since I was young. It was just writing down in a calendar when my bills were due, how much money I had coming in, what I had going out. And that just helped me see maybe what I was spending on if I had any upcoming bills, because sometimes we don’t track it. So then, we’re surprised when we have this upcoming bill that we didn’t expect. And so, at a young age, I started just keeping track in a calendar of all of that information. And I know it’s a little old school, but I feel like when you write things down, you commit it to memory a little bit better. And it’s also just like a time for yourself to really take a look at your financials. Sometimes it can make you feel– for some people, it can make them feel a little bit discouraging, but be encouraged in the fact that you can make changes. And that’s the whole point of saying this, is so that you can make changes.

The other thing that I teach my clients is, I have a business tax tool, prep sheet, where if they are doing a side hustle, I’m teaching them how to track their expenses, what things are tax deductible to them, and just really simplifying taxation as much as possible and record keeping as much as possible. So, those are the things that I like having. Personally, obviously, because I’ve been in my career for a long time, I look at my financials often. And sometimes it does bum me out, but other times, it’s just like, okay, now I know what I need to change or what I spent on, or I spent excessively in one area and I need to change things. And it’s okay to do that. So, don’t be scared to take a look at stuff from that perspective.

17:28 Monique: Will you share with us a client success story, someone who came to you for some help? What was that journey for them and the outcome?

17:39 Damari: Yeah, definitely. I have a young couple actually that’s been working with me for quite some time and they started out, they’re making money, they’re married, they’re a licensed therapist. And so, all of a sudden, they’re married and they jump into a completely different tax bracket and they weren’t ready for that. And so, when they met me, we were talking about that and they’re like, “We just don’t know what to do or we don’t know how to prepare or best prepare.” And so, I do something called tax planning, and tax planning can be for anyone really, especially young professionals that are making good money. Because if you find yourself owing every time or every year, then that means there’s a disparity between how much you’re paying and how much you’re making. And like I said, if you don’t like surprise tax bills, tax planning is for you.

And so, this young couple, they started working with me and doing some tax planning. And what it is, it’s almost like a preliminary tax return. And so, as they’ve grown as a couple and in their lives and their careers, now they see all of the different changes and all the things that are coming along. And every time, they’re even more prepared. And so, they’ve been very happy just because they’re like, “Wow, we never thought that we could get to this point where we know what our tax situation is going to look like. And when we go to do our taxes, that is pretty much what’s happening.” And so, we have the– what’s it called? You don’t want that expectation or that blow to be like, “Ugh, I didn’t expect that. I didn’t save for that. I don’t have that.” And you do this beforehand.

And so, they’ve been a couple that I’ve been working with for quite some time. I’m just glad and happy that they decided to do that. And they’re happy that they decided to invest, not only in themselves, but into their knowledge and into knowing what to expect in a sense.

19:38 Monique: And over what period of time was their journey with you?

19:42 Damari: Oh, they’ve been my client for now three years. So, three tax years. And their life has changed and grown and it’s been nice. They both got their licenses for the state. And every single time, they just know now. They’re like, okay, we know how much either money they’re going to get back or if they’re going to owe, if they’re a little short. But it takes away that angst of just feeling like you don’t know what’s going to happen.

20:07 Monique: Do you find that many people come to you after they’ve already made bad mistakes as opposed to–

20:13 Damari: Yes. We get different types of clients. Some of them, they’re like, “I don’t care. I don’t– the government can wait to get their money.” But the other ones, I do appreciate because they want to be prepared. They want to feel more comfortable and confident about what they’re doing and their tax situation. And because, as you grow and develop as an individual or in your vision and what you’re doing and your career changes, I know what that’s like. I’m a business owner myself, obviously. Not only am I the tax preparer, but I also am a business owner. So, I understand all of the things that come with ownership. I understand all the things that come with working a nine to five and where can I maximize when you work a nine to five.

One thing that a lot of young people don’t do is contribute the maximum into their retirement. And that is a tax advantage. And I know sometimes they’re like, “Well, why think about retirement now?” Well, one of the things that I wish I would’ve done, even though the markets fluctuate, would’ve been starting retirement account at a young age because I’ve been working for more than 20 years now. So, if you find yourself in that position and your employer is contributing to your retirement, do it.

21:36 Monique: It’s free money.

21:37 Damari: It’s free money. Exactly.

21:38 Monique: Yeah, absolutely.

21:39 Damari: I know. So, oftentimes, I like to get to know the person and what they value first and then really go from there, because not everybody feels the same way. Like you were talking about credit card debt, I have a unique take on credit card debt. So, it’s like, not everybody feels the same way and I don’t want everybody to think that or anybody to think that they have to fit any sort of box or mold or anything like that. They can function within themselves and have confidence within themselves and their money and what security and what they have. It’s just a matter of getting the right, like you said, tools in their toolbox.

22:20 Monique: Yeah. I think almost anything can be worked to your advantage if you know what it is that you’re doing.

22:26 Damari: Exactly. Yeah.

22:28 Monique: And get help. So, we will be sharing in the show notes for today’s episode ways to connect with you or follow you on social. And we just are so appreciative of you sharing your expertise with our Tuesdays With Coach Mo audience. Before we go, what’s one thing that yet you haven’t shared that you think may be of interest to this young professional audience? And then I have a “Let’s just have some fun Damari question.”

22:58 Damari: Haven’t shared? Let’s see. When I started my side hustle over 15 years ago, my side hustle was working in taxation. So, getting clients on the side and I was working nine to five. So, I straddled for a really long time. And my side hustle turned into my passion and my side hustle is now my beautiful office in Huntington Beach. So, don’t underestimate your side hustle. It can really turn into something. You just got to be willing to put in the work and also be willing to shift and shape as needed.

23:40 Monique: Yeah. And you are walking, talking testimonial for that. Awesome. And so, our fun question before you go, Damari, okay, let’s see. So, for you, what’s been your Netflix binge or favorite movie in the past year?

24:02 Damari: Oh, well, the thing I most recently just binge was– what is that? That one? Bridgerton.

24:11 Monique: Oh yeah.

24:13 Damari: Yeah. That was the most recent binge. And I think I just binge it because it’s like, I don’t have time to really watch more TV. So, it’s like, I stayed up way too late, way past my bedtime. And that was just regrets in the morning, but then again, I’m like, whatever, I just wanted to watch it all.

24:32 Monique: Yeah. Because it’s that whole like, “Well, what’s going to happen next?”

24:36 Damari: Yeah. Exactly.

24:38 Monique: Right. You don’t have to be in suspense. You can go just keep on watching it. So, yeah, I get you. I’m curious, there was that main handsome actor on Bridgerton and I think he left the show. I’m like, okay, we haven’t seen him reappear. I hope he’s going to resurface somewhere. And I’m like, I hope he didn’t just bounce too early.

24:57 Damari: They say that other– I don’t know if this one is based off of Canada, but other countries, whenever they’re making these types of shows like that, they only get a contract for a year or something like that. So, I think that’s why he didn’t get his, but I know it was disappointing not seeing him. He’s so hot.

25:14 Monique: Yeah. He was like, well, eye candy.

25:18 Damari: Yes. Hold on, eye candy.

25:20 Monique: All right. Well, Damari, thank you so much for your time. It’s truly been a pleasure.

25:25 Damari: Thank you.