Latest news with #ShangSaavedra
Yahoo
12 hours ago
- Business
- Yahoo
Freelanced Too Hard and Got Hit With a Big Tax Bill? How To Handle It, According to a Pro
Question #14 of GOBankingRates' Top 100 Money Experts Series How does freelancing or gig work affect your taxes? The gig economy has exploded over the past decade, with millions of Americans earning income from freelancing, rideshare driving, food delivery and countless other side hustles. But while that extra income feels great hitting your bank account, many gig workers get a rude awakening come tax season. For You: Learn More: Shang Saavedra, founder of Save My Cents and a nationally recognized personal finance expert, has seen this story play out countless times. After helping people navigate financial challenges for more than 19 years, she knows exactly why freelancers and gig workers often face shocking tax bills. But more importantly, she knows how to avoid them. 'If you're self-employed, get ahead of taxes — work with a great CPA and make sure you're taking every qualified deduction available,' Saavedra said. Here's her expert guidance on handling taxes when you're earning income outside the traditional W-2 system. The Hidden Tax That Catches Everyone Off Guard When asked why so many freelancers end up shocked by their tax bill, Saavedra points to a tax that most people have never heard of: self-employment tax. 'When switching from W-2 to freelancer, there's one extra tax you may not be aware of — self-employment tax,' she explained. 'When you were W-2, your employer paid that tax, which is their half of your Social Security and Medicare taxes. But when you're self-employed, you pay both your portion and your self-employed version.' It's true: While W-2 employees split their Social Security and Medicare contributions 50/50 with their employer, self-employed individuals pay the full 15.3% themselves. On top of regular income taxes, this additional burden can turn a profitable side hustle into a financial headache quickly. For example, if you earned $10,000 from freelancing, you're looking at roughly $1,530 in self-employment tax alone, before even calculating your regular income tax obligations. Many gig workers discover this only when filing their returns, leaving them scrambling to cover unexpected bills. Read Next: The Psychology Behind the Shock The tax shock goes beyond just the numbers. In fact, it's psychological. When you're used to receiving a W-2 paycheck with taxes automatically deducted, seeing your full gig income hit your account can create a false sense of wealth. 'You're typically considered self-employed, so you have to actively set aside taxes as you make your income; it's no longer going to be automatically deducted from your paychecks,' Saavedra explained. This shift from automatic tax withholding to manual tax planning requires a complete mindset change. Instead of thinking about your gross freelance income as 'your money,' you need to immediately set aside 25% to 30% for tax obligations. That $5,000 month from your side hustle isn't really $5,000 — it's closer to $3,500 after taxes. Planning Ahead: The Smart Freelancer's Strategy Saavedra's approach to tax planning for freelancers focuses on being proactive rather than reactive. Her strategy involves two key components: professional guidance and quarterly payments. 'Get ahead of it by working with a great CPA to ensure that you are also taking as many qualified deductions as possible by being self-employed,' she recommended. 'There are so many options out there for you to lower your taxable income. Have them help you estimate your taxes so you can pay them quarterly.' Working with a CPA isn't just about filing your annual return; it's about creating a year-round tax strategy. A good accountant can help you identify deductions you might miss, such as home office expenses, internet and phone use, business insurance, and professional development or training costs. The quarterly payment system is equally important. Instead of facing one massive tax bill in April, spreading payments across four quarters means tax obligations are more manageable — and helps avoid IRS penalties. Systems and Tools That Actually Work When it comes to practical tools for managing taxes as a gig worker, Saavedra keeps it simple but effective. 'I use Gusto to run payroll for myself,' she shared. Treating yourself like an employee of your own business helps automate tax withholdings and ensures you're consistently setting money aside. This habit is key to staying organized — and sane — during tax season. Beyond payroll systems, successful gig workers typically use separate business bank accounts, expense-tracking apps and automatic savings transfers to a dedicated tax savings account (again, aiming for 25% to 30% of your income). Having these things in place will help make tax season more bearable. Avoiding the Penalty Trap Beyond the shock of owing taxes, many gig workers get hit with penalties for underpayment. The IRS expects you to pay taxes throughout the year, not just at filing time. If you owe more than $1,000 when you file, you might face penalties unless you've made timely quarterly estimated payments. Saavedra's quarterly payment strategy helps avoid this trap entirely. By estimating your annual tax liability and dividing it into four payments, you stay current with your obligations and avoid surprise penalties. The Deduction Advantage One silver lining of gig work taxation is the expanded deduction opportunities. Unlike W-2 employees who typically take the standard deduction, self-employed individuals can often deduct business-related expenses to significantly reduce their taxable income. Common deductions that gig workers often miss include health insurance premiums (if you're self-employed and pay your own), retirement account contributions and expenses related to your business. (That could mean a car if you drive for rideshare apps, or office equipment if you work from home.) The key here is documentation. Keep receipts, track mileage, log expenses and maintain clear records. When in doubt, ask your CPA whether an expense qualifies as a business deduction. This article is part of GOBankingRates' Top 100 Money Experts series, where we spotlight expert answers to the biggest financial questions Americans are asking. Got a question of your own? You could win $500 just for asking — learn more at More From GoBankingRates Still Paying Off Debt the 'Smart' Way? Dave Ramsey Says That's Exactly Why You're Stuck Frugal Living Expert Michelle Schroeder-Gardner: How I Save Hundreds per Month, One Expense at a Time Are Memberships Worth It? This One Comes with More Than $1K in Annual Benefits 3 Advanced Investing Moves Experts Use to Minimize Taxes and Help Boost Returns This article originally appeared on Freelanced Too Hard and Got Hit With a Big Tax Bill? How To Handle It, According to a Pro
Yahoo
27-07-2025
- Business
- Yahoo
How This Financial Influencer Finished Saving for Retirement at 31
The steps to take toward saving for an early retirement might be simpler than you imagine. Financial influencer Shang Saavedra shared in an Instagram post how she finished investing for retirement at 31 and explained that anyone can also be an investor if they understand a few key topics. Check Out: Explore More: She said it took an understanding of just a handful of concepts to achieve her retirement goals. Invest In What You Know and Love Similar to the old adage of 'Write what you know,' this piece of advice focuses on starting with what you're familiar with and where your interests lie. Investor Peter Lynch popularized this philosophy that's rooted in your own intuition and familiar companies. Saavedra said a Wall Street executive Janet Hanson went to her college class and yelled into a microphone, 'You already buy things you love. So why not invest in what you love?' Find Out: Learn How a Company Makes Money 'If you don't believe someone can make money… then don't invest in it,' she said. She pointed out that this idea isn't always intuitive. She gave the example of rental car companies, which may make a lot of their money from selling cars. Having this knowledge can help you make empowered financial decisions. And remember, every company has a business plan, so familiarize yourself with its ins and outs. Understand the Difference Between a Bond and a Stock A bond is debt, while a stock is ownership in a company's profits, Saavedra said. They represent two fundamentally different types of investments with stocks coming with the potential for higher growth but also greater risk. Bonds generally have more predictable returns with less risk. This basic knowledge is very important, she said, because they are the two largest asset types you can invest in. Read, Read and Read Some More Saavedra spends 30 minutes reading various newspapers every day. 'All of the best investors I know read voraciously,' she said. Warren Buffett spends 80% of his day reading, according to Inc., and he has suggested people read 500 pages a day to achieve similar success as him. Know That No One Always Gets It Right While investors can avoid making some big mistakes, Saavedra reminded followers that 'no one can predict the future.' For instance, even seasoned investors could not have detailed the economic situation under President Donald Trump's administration. The hard part of investing is making decisions without having all the information. More From GOBankingRates 3 Luxury SUVs That Will Have Massive Price Drops in Summer 2025 5 Types of Cars Retirees Should Stay Away From Buying 7 Things You'll Be Happy You Downsized in Retirement This article originally appeared on How This Financial Influencer Finished Saving for Retirement at 31
Yahoo
26-07-2025
- Business
- Yahoo
How This Financial Influencer Finished Saving for Retirement at 31
The steps to take toward saving for an early retirement might be simpler than you imagine. Financial influencer Shang Saavedra shared in an Instagram post how she finished investing for retirement at 31 and explained that anyone can also be an investor if they understand a few key topics. Check Out: Explore More: She said it took an understanding of just a handful of concepts to achieve her retirement goals. Invest In What You Know and Love Similar to the old adage of 'Write what you know,' this piece of advice focuses on starting with what you're familiar with and where your interests lie. Investor Peter Lynch popularized this philosophy that's rooted in your own intuition and familiar companies. Saavedra said a Wall Street executive Janet Hanson went to her college class and yelled into a microphone, 'You already buy things you love. So why not invest in what you love?' Find Out: Learn How a Company Makes Money 'If you don't believe someone can make money… then don't invest in it,' she said. She pointed out that this idea isn't always intuitive. She gave the example of rental car companies, which may make a lot of their money from selling cars. Having this knowledge can help you make empowered financial decisions. And remember, every company has a business plan, so familiarize yourself with its ins and outs. Understand the Difference Between a Bond and a Stock A bond is debt, while a stock is ownership in a company's profits, Saavedra said. They represent two fundamentally different types of investments with stocks coming with the potential for higher growth but also greater risk. Bonds generally have more predictable returns with less risk. This basic knowledge is very important, she said, because they are the two largest asset types you can invest in. Read, Read and Read Some More Saavedra spends 30 minutes reading various newspapers every day. 'All of the best investors I know read voraciously,' she said. Warren Buffett spends 80% of his day reading, according to Inc., and he has suggested people read 500 pages a day to achieve similar success as him. Know That No One Always Gets It Right While investors can avoid making some big mistakes, Saavedra reminded followers that 'no one can predict the future.' For instance, even seasoned investors could not have detailed the economic situation under President Donald Trump's administration. The hard part of investing is making decisions without having all the information. More From GOBankingRates 3 Luxury SUVs That Will Have Massive Price Drops in Summer 2025 4 Affordable Car Brands You Won't Regret Buying in 2025 I'm a Retired Boomer: 6 Bills I Canceled This Year That Were a Waste of Money This article originally appeared on How This Financial Influencer Finished Saving for Retirement at 31 Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
