In episode #42, hosts Elizabeth Larkin and Gene Marks discuss how to pay your taxes if you have a side hustle. How much do you report and what you can take as a deduction?
In the second segment, we talk about the benefits of buying a competitor’s business.
Interact with Us
- Sign up for the weekly newsletter so you never miss an episode.
- Do you have a question you’d like Elizabeth and Gene to answer? Submit your question to the Small Biz Ahead Podcast.
- Leave us a review on iTunes and we might read it on the show.
- How To Really Make Sure You’re Not Overpaying on Small Business Taxes
- 15 Things You Didn’t Know About Travel and Entertainment Tax Deductions
- 5 Really Dumb Ways to Save Money On Your Taxes
Download Our Free eBooks
- Ultimate Guide to Business Credit Cards: The Small Business Owner’s Handbook
- How to Keep Customers Coming Back for More – Customer Retention Strategies
- How to Safeguard Your Small Business from Data Breaches
- 21 Days to Be a More Productive Small Business Owner
- Find the Right New Business Idea for You
- 99 New Small Business Ideas
Elizabeth: I am not going to start the show by saying okay, this week.
Elizabeth: I am going to start it by saying, I am not going to start the show this week by saying okay this week. Gene, how are we doing today?
Gene: We are doing just fine, Elizabeth.
Elizabeth: So today our first question is going to be about side hustles. And I just wanted to talk to you more about, this is a specific question about side hustles and taxes but in general, how do you feel about side hustle?
Gene: What is a side hustle?
Elizabeth: A side hustle is someone who works at a full-time job but they have a little something on the side and it’s a hustle.
Gene: A little something something. What do you mean, its a hustle? Is it legal?
Elizabeth: Yeah, no, they could be a Uber driver. They could be a wedding photographer. I mean they are kind of a business owner but not really. They are making money on the side.
Gene: Yeah. Okay, first of all if they are making money on the side they are a business owner. I am a believer if you file a Schedule C, for any outside income, if you have customers on your own, like a wedding photographer, you are a business owner.
That is a business.
How do I feel about it? Good for them.
I hope that you balance your life and I hope that you are making sure you aren’t ignoring your family and giving some personal time for yourself, your health and your personal well-being. And exercising and all that. Amen, you want to finish your day job and be an Uber driver at night to make extra bucks, good for you.
Elizabeth: Alright, great. Okay, we will be right back with a tax question about side hustles after we hear from our sponsor.
QUESTION #1: Side Hustles
Elizabeth: Okay our first question, oh, I did it again, I said okay.
Elizabeth: Our first question is from Quinn in Bellevue, Washington and Quinn writes,
“I have recently retired and started giving piano lessons out of my home. I have a few students and I certainly don’t expect to get rich doing this. Do I need to report the income I earn giving these lessons?”
Gene: Nah, you don’t have to tell the IRS about any incomes. Sweep it all under the bed. Who’s gonna know?
Elizabeth: I am going to guess he is probably being paid in cash.
Gene: Yeah, I would agree with that. Come on, Quinn.
What do you think the answer is going to be to that question?
You are kinda hoping we are going to be like, sure it’s fine, you are a piano teacher. You put in your years of service. Yes, of course you have to report that income. It doesn’t make any difference it you are getting checks, cash, Venmo, bitcoin, if it’s income to you, you have to report it. You have to report in on a schedule C on your personal income tax return. Now, if you have any expenses related to your piano teaching. Maybe you buy piano materials or a piano tuner, or sheet music. A piano tuner comes to your house every quarter or whatever, that is an expense to running your business. That is good.
Elizabeth: What if the expenses of running that business exceed the earnings?
Gene: Well, there are specific rules about whether or not you can take a loss on a schedule C. You would have to talk to your accountant about that.
Elizabeth: What if it is just on the line?
Gene: If it is just on the line you’ve got the perfect business. You figured out a way to make money but come up with expenses that offset all of that. You can make the argument by the way that it is the most imperfect business because if you are making money and you have as much expenses, whether you are running a Schedule C or you are running The Hartford, it doesn’t sound like a good business if you are just breaking even.
There is nothing wrong with making a profit, but you have to pay takes on it. But good for you. Quinn if you are going to make some money teaching piano.
My kids could have used that. We gave my kids piano lessons for like 5, 6 years. It was the worst mistake. They were terrible at it. I remember we went to a recital and my one son was so bad, they had him play, the piano teacher at the recital, there were kids at this recital, they were playing Chopin and Bach and my kid was playing “Chopsticks.” And I walked out of there saying we just paid in piano lessons alone, I calculated it was $22 a note, for that. When I look at all the notes he played and the money we paid.
Elizabeth: Did he know he was bad?
Gene: Yeah, he knew he was bad.
Elizabeth: Did he care?
Gene: No, we told him he was terrible. You are horrible at this. This is the last year you are doing this.
Elizabeth: So did you keep making him do this.
Gene: We gave it a shot. You know. It was such a mom thing. My wife was like, you know, our kids have to take piano lessons. Meanwhile, me and my wife have no musical capability whatsoever. But, it is like a thing you do with your kids. It is fine to do that but if you are a piano teacher, like Quinn, it is a great little business.
Elizabeth: You don’t have to leave your house and…
Gene: That’s exactly right.
Elizabeth: You are an expert. That is awesome!
Gene: By the way, Quinn, while we are on the topic, if you are teaching piano, don’t think about taking a home office deduction, you know what I mean. Unless that piano is in it’s own room and only gets used for piano lessons and that’s it. That room is not used for anything else. It is a piano office. Then you might have a position for saying taking some sort of home office deduction but if it is sitting there in your living room and you are playing on it on your own and it is part of the decoration of the house, then let’s not even go there Quinn. I know you were going to ask that question. Because you asked did you have to report the money you were making? So I know that is coming up. I am heading you off at the pass.
Elizabeth: Lets expand this to other side hustles. An Uber driver.
Elizabeth: They are going to send you a tax form.
Gene: There is no getting around that. Not only are they going to send you a 1099, because most Uber drivers are contractors, they are going to report the 1099 to the government. You got to report it.
Elizabeth: What about someone who cuts hair out of their home for like 2 or 3 people?
Gene: Are you seriously asking me this question? If you are earning money, you got ….. I will focus on my wife, she is a tutor. She tutors after school. She is like a reading specialist. So she works with kids. Do you know what she charges? She charges $75 an hour. For people for their kids to get help with their reading.
Elizabeth: What ages?
Gene: They are 3rd or 4th grade kids. And they are reading at a 1st grade level. It is pretty serious. You know. They really need that extra help for a couple of hours each week, but jeez, so she walks out of there with cash in her pocket. Or course, I am the guy … I am like the worst.
Elizabeth: You gotta report it.
Gene: No, I am the opposite. Do we really have to ….. just kidding. You have to report it. She records it on a spreadsheet. The only thing I make her do is, make sure she is recording her expenses. Sometimes she takes a taxi to the place of the student. Some times she has materials she uses. She is actually a certified learning specialist. She has a full-time job and she has to maintain the certification which costs. There are expenses that you can take on your Schedule C. But you have to report it. Cutting hair. What kind of a question is that.
Elizabeth: We will be right back with our question 2. Which is about capitalizing on a competitor going out of business.
Gene: Yes, I like that.
QUESTION #2: Competitor Going Out of Business
We are back with question 2. This is from Monroe in Sioux City, South Dakota. He writes,
“I own and operate a small hair salon and spa. I just learned that one of my competitors will be going out of business soon. How do I snatch up their customers for myself??
Elizabeth: So, this is actually … I can’t believe we have actually gotten through maybe 5 to 10 podcasts that I haven’t talked about my hair salon. This gives me the perfect time to do that.
So, my hair stylist just left the salon she was at, the one I have been going to, to go to another salon. I want to follow her, but, the new salon does not allow you to make appointments online, which really bothers me.
I work in an open office and I just want to go online and make my hair appointment, while I am looking at my work computer. A good way to capitalize on a competitor who is going out of business is to get the best hair stylist from that salon to come work for you. Which I don’t think …
Gene: I love that idea.
Elizabeth: I think at salons, they bring their business, I think this is the business model. So you provide the space and the chair but they have to buy the hair dye and all of their supplies so the cost of bringing someone new on is not that high for you. Yes, you have to pay them and everything but their taking on a lot of the risk themselves. Gene?
Gene: I love that idea. I think that is great. In the salon business it is very much that way.
We are talking specifically, Monroe, about the hair salon business where a lot of the times the people cutting the hair are contractors themselves and you can find out who they are and bring them over to work for you. And they will bring their customers with them. From what I understand. And I am speaking from the view point of somebody who has no hair, that people with hair, particularly females with hair, get very much connected to the people who do their hair. It is like a thing. You don’t want to switch. So if the stylist leaves one salon to go to another that person’s going to bring along their customers with them. I think that is a really great way to do that. Couples of thing, I don’t what you relationship is with the competitor that is going out of business, but if you know this in advance, sometimes if person is going out of business, what’s it to him or her to say, sure if you want my customer list here you go. You can always ask, you have nothing to lose. Saying listen, I know you are going out of business and I would love to pick up some of your customers do you have a list of them, that I could reach out to them.
Elizabeth: You gotta pay for that.
Gene: Maybe, maybe not. It really depends. Yes, you are right. Sometimes a person might say, …well if you pay, … then you do a ROI calculation. You are like, if I give this guy $2,500 for the list and wow, there is all those names there and I can get this many customers, I will get a return. Or you might luck out and the person will say sure, I am going out of business, whatever, here is my list of customers. Ask. Ask.
Elizabeth: So, say you get that list. So what are you going to do what? Reach out to these people with an offer.
Gene: Yes, you definitely want to reach out to them. Hopefully, if you have a phone number or an email address of that person, you are going to invest a little bit, you are going to hire someone, a telemarketer and call them and say I hear you are leaving this salon and I would love to offer you this special discount to come try us out. That is the other thing that I would also like to say. If you are looking to bring in new customers, from a competitor, and you really want to give them an enticement. Give them something for free. Say, you know what, we think we can do a much better job for you. Your first appointment with us, free. You can come on in and try us out. We will prove to you, we are willing to put our money where our mouth is and we will prove to you just how good we are. Now again, that is an investment you have to make but in that business in particular, there is such a relationship involved, wouldn’t you consider?
Elizabeth: I don’t know if I would value a free haircut, honestly. I would be like, no, this is my hair.
Gene: How about, I tell you what, our price is X, but if you don’t like the cut you don’t have to pay.
Elizabeth: I would take a 25% discount. I would take a free manicure. Because he said he was a salon and spa.
Gene: That is great advice, Elizabeth. There are certain things that if you offer them for free it wipes out the value. That is great advice. In that specific thing, maybe you offer something extra, without giving it away.
Elizabeth: If it was a commodity, I would take it for free. But my hair, I just wouldn’t do it for free.
We will be right back after we hear from our sponsor, with Gene’s Word of Brilliance.
WORD OF BRILLIANCE: Stress
Elizabeth: We are back with Gene’s Word of Brilliance.
Gene: Alright Elizabeth, this is an article that I wrote recently that reported on a study that was done by the United Nations International Labor Organization. They studied workers in 15 countries and it resulted in the word of the day. That word is Stress. We talked on a podcast before, about working from home or working remotely and a lot of companies have work from home policies, but guess what this study found? It found, that people who work from home suffered more stress than people who actually work from the office. The percentages are this. 42% of the people that worked from home suffered from insomnia, compared to only 29% of their colleagues in the office. 41% of those employees who worked out of the office said they felt some degree of stress compared to 25% of the office workers. So working from home, this is a UN report that was done. But again, it was done in 15 countries, found that maybe working from home isn’t’ such a great thing for your employees.
Elizabeth: Why do you think that is?
Gene: Well, some of the reasons given was that the responsibilities for the employees was more on their own shoulders. Stuff that they had to get done on their own. How they had to manage their schedules and the stress of not being in the office and seeing what is going on. Sort of being out of the loop.
Elizabeth: I can see that.
Gene: It was causing additional anxiety among people. They felt like ….we were talking before with Johnna, right, we were talking about working from home. When you do work from home you do feel like you are on your own island. Sometimes you feel very insulted from the way the world is outside going on. Those numbers don’t surprise me that much. I have one other example. I work from home a lot. I will never forget this. It was years ago. Maybe ten years ago. I was working at home all day, and there was a hurricane that was coming to the gulf of Mexico, and I remember, I am at home, nobody’s at home. Just me and the internet. And I am looking at the internet and they are predicting that the world is coming to an end. The hurricane that is coming is going to knock out all the oil production in the gulf of Mexico.
Elizabeth: Was it Katrina?
Gene: No, it wasn’t Katrina, it was another one. There was going to be gas and oil shortages around the country. You have to go out and horde up on gas … I am reading this, because it is the internet … I am at home and I am like stressing. I am like holy … so like lunch time came. I better go out right now and fill up the car and make sure we have a full tank of gas. It is like the apocalypse is coming. I go out, nothing, everyone is like, whatever, there are no lines at the gas station. So like. I kinda get it, if you are working from home and you are that much removed from the world going on around you, you can create some stress for yourself that you aren’t getting when among other people in the office.
Elizabeth: I guess I can see that. I just feel like not having the daily commute and not having people interrupting you all the time, I think it would be a wash.
Gene: But listen, we are in your office right now, in a office building. Do you feel stressed?
Gene: See, there you go.
Elizabeth: True, true. There are security guards here in case someone comes for us.
Gene: That is true. In case someone gets out of line.
Elizabeth: Thanks for joining us this week everyone. We will be back next week with another episode of the Small Biz Ahead Podcast.
Along with almost everything which seems to be developing throughout this particular area, all your perspectives are actually quite refreshing. Having said that, I beg your pardon, because I do not give credence to your whole strategy, all be it radical none the less. It would seem to everybody that your opinions are generally not entirely validated and in simple fact you are yourself not even thoroughly confident of the point. In any event I did enjoy reading it.
Nice advice! I’m working up to making passive income 24/7. In fact, it has only been about 2 months since I started and I’m now making $500+ every month from just a few hours of effort a few times a week.
I truly enjoy looking through on this web site , it holds superb content .