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Organize

Estimated Taxes and Your Side Hustle

Many of my creative friends have side projects while Jake’s friends have Twitch streams bringing in extra income, and I consistently find that many independent contractors don’t understand estimated tax payments. We all owe the IRS an annual tax return in which we declare all of our income for the year–even if we didn’t receive a 1099 from PayPal or another payor. (We Californians owe the state Franchise Tax Board as well.) Most new businesspeople take the phrase estimated taxes literally. Sounds smart, like budgeting, but isn’t actually required by law. However, for the self-employed, estimated taxes are required by tax law to be submitted every quarter during the taxable year (meaning when you file your annual return for last year, you should have already made four pre-payments towards your federal taxes for the prior year).

When you are paid as an employee your employer withholds taxes on your paycheck, as well as covers the employer share of some of those taxes, and you receive a W-2 at the end of the year showing all the payments that have been made regularly over the course of your employment. This means as you earned income, the taxes were remitted on a timely basis. When you are paid as an independent contractor—meaning you typically have a contract specifying a payment schedule or submit invoices—your customers do not withhold any taxes for you, and it’s up to you to make timely tax payments as you earn the money. You cannot wait until the following April and send one big check with your tax return or you will incur penalties for the underpayment of estimated taxes. (You can calculate these with your return using Form 2210, but if you don’t, the IRS will, and will send you a bill. It may take some time for them to do this, but they will catch this common error and come calling for the penalties and the increased amount of interest now due to them.)

If you owe less than $1,000, there will not be any penalty. For most people, as long as you pay 90% of what you actually end up owing for the current year (in the actual quarters in which you earned the income), you are safe. Alternatively, you can pay 100% of what you paid last year, unless your income is greater than $150,000, then the IRS requires 110% of what you paid the prior year to ensure you are penalty-proof.

For 2018, but when you get your final 2017 return done, look at your total taxes owed. Subtract from that total the amount any employer can be expected to remit for you over the course of the year. Take your current pay stub and multiply the income taxes withheld and remitted on that single paycheck by the number of paychecks you receive in a year. Assuming you pretty much make your money equally over the course of the year, you can divide the balance by four and download a 1040-ES coupon (page 11) to remit these sums each quarter on the due dates listed to stay clear of penalties and interest. Note that while the payments are typically due the 15th after the calendar quarter ends, they second payment is due a month earlier—on June 15, before the quarter ends. (This is true for the California as well, the 540-ES stubs are here.)

As I used a fictional Overwatch League player, making the minimum guaranteed annual salary of $50,000 before, I’ll stick with that example here. Now we’ll assume that this player has Twitch revenues of $1,000/month coming in as an independent contractor, which probably means he also has some tips coming in via PayPal, which should also be declared, so let’s say tips average $500/month ($1,500 x 12 = $18,000/year). The OWL team will be remitting taxes based on the information provided by the player, and as most of the players are single, childless, and probably not home-owners yet (so they have few of the deductions the tax code favors), if they accurately completed their W-4 the taxes being submitted are pretty high, which, given the $1,000 tax due grace amount, gives the casual side hustle a safer margin. On this salary, the federal income taxes should be about $500/month, of $6,000/year. If on his 2017 return the player owed $9,000 in income taxes, the penalty-proof amount to remit would be the extra $3,000, or $750/quarter on the 1040-ES. Keep in mind that 1040-ES is your estimate of what you owe so there’s no guarantee it ends up being the right amount for the year. This just guarantees you don’t have to give the federal or state tax departments more money than required. The smart rule of budgeting would be to take a set amount of your 1099 income each month and put it in a separate savings account for taxes, so whatever you owe, you can pay promptly with submission of your tax return.

Payroll taxes are calculated based on the income rates for that salary, so while the OWL team is correctly remitting for a person who makes $50,000 a year, the player actually makes $68,000 a year. Not only is $18,000 going untaxed all year, but the player could have bumped into higher tax brackets on some of the salaried $50,000, meaning not enough of it was being remitted as income tax. With the new 2018 laws, this wouldn’t be true for these dollar amounts, but it’s worth being conceptually aware that marginal tax brackets exist and you can shift into a higher one for some of your salaried dollars.

There is an alternative option for anyone with a paycheck. You can ask your employer to let you adjust your W-4, and have additional amounts remitted each paycheck for your state and federal taxes. In this case, if the player is paid monthly, he could complete his W-4 so that an extra $250/month was being remitted towards federal income tax, thus meeting the $750/quarter amount he expects to be correct for 2018. This makes the paycheck a little heavily taxed, so that he doesn’t have to worry about the Twitch and PayPal income being untaxed in real time. Any way you get there, you want to be sure you are remitting taxes as you owe them, as you earn the income, so you don’t pay more than what you should owe in interest and penalties.

The Side Hustle Advantage

Side hustles have never been easier. You’ve got platforms for selling like Etsy and eBay for the creators amongst you. There are virtualized connector app platforms that rely on flexible independent contractors like Uber, DoorDash, and Task Rabbit. These are great options for students working their way through who need to make money now, which results in less time for the extracurricular activities I’m championing. The flexibility of working for DoorDash or Task Rabbit works nicely with a changing school schedule. Even if you have a campus work study job, many of those don’t offer hours during the school breaks when you might still want to be earning. Same for athletes, who may be maxed out during the school sessions, but could swing being a Task Rabbit Ikea assembly expert at least a few weeks of the year. Some students may be nascent entrepreneurs, making and selling t-shirts, where this is a logical (and long-standing) effort for college students. Lots of colleges, like Juniata College have entrepreneurship centers to support undergraduate student efforts. Or maybe your passions don’t fit into the school’s extracurricular process at all. Continue Reading

Accepted? Start Planning!

This is the time of year when all the college acceptances start pouring in. You may spend April doing some final visits to figure out which school is right for you now. You may not know what you want to major in, but you likely have a couple of alternatives in mind. It’s not too soon to take a look at the classes your possible schools have and start roughing out a plan. (If you know which one you’re going to go to, you can get more detailed from the start.) This will make college a more valuable, productive experience, and any opportunity to practice this kind of planning will be critical to success in your career. Planning your classes yourself and continuing to rough out the plan as new information becomes available will help you graduate on time and save you a ton of money in the process. (The money aspect may make it tempting for parents to take over this spreadsheet, but if you are a parent who really must, at least use it in stealth mode, to prompt your student to double-check their facts. Land the helicopter and walk away.) It may also save you some false starts. For example, some science majors at some schools are not easily compatible with a semester abroad—taking a look now will help you pick the right school and go in to a chosen school aware from the start about any potential trade-offs between your interests.

By way of example, I thought I’d use one my sons’ college experience. To help you drill down into as much of the detail as you like, without my writing too much into the weeds, I’m linking extensively to the University of Puget Sound website throughout. His journey may be very different from what you imagine for yourself, but the twists and turns of his college career are probably far less than the average experience. The point of adolescence, college, and those first few jobs out of college is to help you figure out who you want to be and what you want to do, so you should expect you’ll need to adjust the grand plan constantly. (BTW, the same thing will be true of your career—see the animation in my last post.)

Luckily, my son, Nick, was willing to send me the College Schedule spreadsheet he showed me over the holidays and said I could share it. By way of background, Nick’s a senior at the University of Puget Sound, graduating this May (2016). He was admitted as a freshman with a Humanities minor and as part of the Honors program. Right off, getting accepted to both programs meant he had to take both program-specific freshman writing seminars (on his sheet these are the HUM classes in freshman semester, although they now have different SSI-1 designations in the link above). Our family thought that was a good thing, because while he was a strong writer and coming out of a large, well-regarded public high school, his classes typically had 30–40 students. Continue Reading

Returning Student To-do List

Here’s my list of things to do in September for returning students:

Get a flu shot (you don’t have time to be sick). Most pharmacies can do this, you don’t need a trip to the doctor or student health. It’s likely covered by your insurance, but if not, it’s a great investment of $25-40. You cannot get sick from the shot, and each year’s shot is different.
Stock up on the stuff you’ll need if you still get sick, as your budget permits. Some vitamin C, Zinc tablets, and other OTC basics like cough syrup, decongestant (nighttime and non-drowsy), and a fever reducer like Advil or Tylenol (or plain old aspirin). When you are sick you won’t want to go out and get this stuff and you need it all to get well faster.
If your parents are not picking up 100% of the college tab, make sure you’ve got the best possible employment lined up. You need a good hourly rate, sufficient hours (at times that don’t interrupt school), and, ideally, something that is helping you make contacts or build skills. If you’ve got to take a nanny gig, do so, but keep looking—that’s not a job that does much for you in the long run. It tends to have no network and no respect in the career job market. Working your way through college is a great thing to do, but it’s not going to give you much time for extracurriculars that build skills, so you want to make sure jobs are doing double duty as an income generator and a skill builder.
Go talk to professors in your major, if your school doesn’t provide you with a specific advisor. If you don’t like your advisor, you need to be looking for a professor to replace them. This is not a big deal. Odds are if you are not clicking with someone, they aren’t clicking with you either. In any event they are professionals, they won’t have hurt feelings. You need information on where this major might lead you.
Go talk to career services NOW. Find out what services they offer on your campus. I went to UCLA and they were great back then and clearly are still terrific. You’ll want to front-load any workshops in September and October. The hunt for a summer internship starts early in the year. If you go to school away from home, you may want/need to live at home in the summer (lots of internships are unpaid), so you need be well underway so you can do informational interviews over the phone in October-November, in the hopes of setting up some meetings in the winter break. Looking for an internship over Spring Break is way too late. (If you are hoping to submit a research proposal for the summer, note that successful proposals get discussed with professors now—it’s a Fall semester project even if it’s got a Spring semester deadline.)
Career services will certainly have access to programs to help profile careers that might be a fit, but if not, I highly recommend What Color Is Your Parachute. It’s been in print since 1970, and it was the only book my peers and I could use back in the stone age when we graduated—before consumer-directed internet, amazon.com, or anything else. We wrote letters, answering want ads in the newspaper, and sat by landline phones to get a call. (In the snow, uphill both ways.)
Map out your completed classes and the ones you need to graduate with your major(s), minors, concentrations. You need to know now if it will all fit in and make some choices. (Large schools love to have these meetings late in junior or senior year—this approach is not in your best interest.) Even those without a clear idea of your major, you need to be taking control of your destiny. You may find your choices to date have locked you out of some majors or combinations of majors/minors. The process may also tip you off as to what your major should be based on where you are most engaged and already succeeding. I know there are offices on campus that will assist you, but you need to develop these life skills so some pre-planning before an advising meeting is still a good thing.

Organizing Overview: Money, People, Time

In this world no one rules by love; if you are but amiable, you are no hero;
to be powerful, you must be strong, and to have dominion
you must have a genius for organizing.
—Cardinal Newman

Bringing order to chaos (aka herding cats) is something you’ve been working on all through high school. If you hadn’t been good at it, likely you wouldn’t be in college right now. And if you’re working your way through school, you already know even more about this one. It’s hard to get control of all the variables in your life. In the working world you’ll need to get your variables and a lot of other people’s to synchronize in order to get things done.

College shelters you a bit from creating time management from scratch—you don’t have to propose meeting times for your classes, locate the various required books and materials from multiple sources,* or find a place to meet and a way to pay the professor. But you’re picking classes that combine into a set of major/minor and general graduation requirements as well as addressing your intellectual curiosity for new subjects. Each semester’s picks fit into the reality that you can only be in one place at one time, prerequisites completion, and physical constraints (you need a enough time to make it from one end of campus to another—even in snow or 105-degree heat) and trying to wrap it all up on the desired four-year schedule. This isn’t something that specifically goes on a resume (although I do see “graduated in three years” noted from time to time and I get the subtext, although perhaps only because I graduated early, too.). Be aware of the skills you’re building—and make sure you are working on these. As college progresses shove your parents out of the process, involve your advisors for advice and as sounding boards, but don’t look to them to move in as replacement helicopter parents. Parents: Start pushing your student to take control. By senior year you shouldn’t be managing anything. Even if you’re underwriting college, you shouldn’t even be making plane reservations. No one in the office will be doing this for your student—they have to learn now, even if they are “too busy.” Move them in freshman year, but unless you’re close and they have no other options don”t move them out or back in. they need to navigate these basic things on their own. Time management, both in the sort- and long-term, is a skill you’ve got to get down.

Build on those time skills, and start organizing other people. Continue Reading

Reading: The Defining Decade

Subtitled “Why Your Twenties Matter and How to Make the Most of Them Now,” by Meg Jay, I loved this book. I first heard Meg Jay on NPR’s TED Radio Hour podcast, and loved her message. She’s a clinical psychologist working both as a college professor and in private practice. Her introduction notes, “Eighty percent of life’s most definitive moments take place by age thirty-five. Two-thirds of lifetime wage growth happens in the first ten years of a career.” I found that pretty hard to resist.

Dr. Jay introduced me to the phrase identity capital–a collection of our personal assets. As you go through life, you accumulate experiences as well as skills. Her issue with underemployment after college is that it doesn’t give you any identity capital (and barely gives you relevant skills). You’re better off with jobs that help you continue to develop conversations that lead to lucky breaks. So nannying might be great for paying the bills, but work that on the side if you must while temping in a field you might be interested in so you begin to have experiences and conversations that move you forward.

Scary as it is to contemplate, time isn’t endless, so you can’t afford to mess around. I’m even more insistent on this point. I don’t think you can afford to write off the four (maybe five) years of college as a complete time out from the real world. As I read comments from clients like, “…you can’t pull some great career out of your hat in your thirties. You’ve got to start in your twenties.” I want to amend it to say: You can’t expect to pull some great career skills out of your hat upon graduation. You’ve got to start building them now.

Dr. Jay goes on to note that “After serving on several admissions and hiring committees,…a good story goes further in the twentysomething years than perhaps at any other time in life.” To go into internship interviews with a memorable story, you need to be doing things before you get the glorious internship that leads to the amazing first job. Spend your summers and your extracurricular time wisely!

The book goes on to a great second half on relationships, in much the same theme. (If you’re dating badly now, you’re missing out on building the relationship skills you’ll need when the right one comes along.)

Recommendation? The book is a fast read, full of stories about clients that really help drive the points home painlessly, but I recognize you might have to pick and choose so if you are really strapped for time, spend 15 minutes listening to her TED Talk. (Got an hour, check out the TED Radio Hour podcast on The Next Greatest Generation.)

Speaking at Meetings

Those of us in the work world are consumed by meetings. It’s a huge part of getting things done, or NOT getting them done. Sure, your classes have “meetings” but this is a whole other beast. Corporate meetings fall into two categories, much like class sizes.

There are big meetings, when a large group shows up to be lectured at by someone at the front of the room.

The speakers have info they think is vital to convey. By stopping all company work for their Town Hall, All Hands, or monthly webcast, they are really serious. It costs a lot of money to have everyone stop working at the same time. Pay attention. Just as a giant introductory class might not be the most interesting part of a given academic subject, it’s foundational for everything that will come later. You still need to listen and make sure you’re getting the material down. You’re in no position to guess what’s relevant and what’s not. It’s also a great chance to get a feel for the larger culture in any new job (or with any new client or vendor). How do the folks on stage dress? What do they look like? I’d take it to heart if I only saw really old white guys on the stage or you’re in marketing but the only people ever on stage are the folks from finance and operations. There’s a subtext there. Continue Reading

What are Soft Skills?

Back in 2012, The Chronicle of Higher Education published this study on employer perceptions of college graduates. And one-third of folks from my very popular segment, Media/Communications said that colleges were doing a fair or poor job of producing graduates who were going to be successful employees. Another third of employers across all industries said “recent graduates are unprepared or very unprepared for their job search” while “over half of the employers indicated difficulty in finding qualified candidates for job openings.”

Sure, this survey is three years old and the job market is much improved. Some students are now reneging on offers because better ones come along. The thing is, while the offers are being made, and the jobs and internships filled, that doesn’t mean that you’ll be well-regarded. And failing at your first job without being told why is pretty disastrous. You may not end up fired, just shunted off to the side or conveniently laid off. Continue Reading