I’m a little concerned. I’m making more taxable income this year outside of my full-time job, but my tax withholding was calculated based on only my full-time income. Last year I had a few thousand dollars extra income, but I was able to use related expenses and my SEP IRA to offset a good portion of that. With the web-based busienss picking up this year, I need to do something to make sure I won’t end up with a hefty IRS bill next year.
I plugged some estimated numbers into the IRS’s withholding calculator, which determined I should set my withholding exemption level to 0 and freely give to the government $150 each paycheck in addition. I wasn’t completely comfortable with that number, so I adjusted my full-time withholding to level 0 plus an extra $50 each paycheck.
This just means that I’m going to have to use some of my side income towards expenses rather than just leaving the bulk of it in savings. Starting next month, I’ll transfer 50% of my additional income into my active accounts to help pay for regular expenses.