Saving for a rainy day, part 1 of 2

During this most recent summer, I consulted on a reality construction TV show for a production company. I was excited to get the chance to work on a TV show, and I really enjoyed learning how those reality construction & remodeling shows go together. I have to say that the extra cash I earned from it was nice, too; they gave me two checks for my work, totaling a little under a grand. During a time when my entire office's pay had been cut, a little extra in the pocket sure helped. It was even invigorating, until I looked a little closer at the check.

The receipt-accounting-stub-thingy attached to the check showed that it was straight pay--no taxes or anything had been withheld. Hmm...suddenly things got sticky. If you earn money during the year, you have to claim it. And if you earn money and claim it, you'll have to pay taxes on it, especially if it wasn't taxed before. What this meant for me is that even if I wanted (or needed) to spend that money somewhere, I'm still going to have to account for having to pay taxes on it at some point in the spring of 2011. So even if I need to use that money now or in the near future, I need to set aside at least a third (probably more like 40%) in case I have to pay taxes on it. The same thing occurred to me (well, it occurred to my husband first) when I recently returned from a speaking engagement. I had been given a handsome check to cover my travel expenses and my speaker's fee, and as I looked at the check I realized the same thing had happened here--there was no sign that the non-profit had withheld any taxes on my pay. I realized that, at least for now, I was going to have to set aside my actual speaker's fee for now in case I was going to owe major taxes on this.

It would be tempting not to claim any of this income. However, each of these companies and organizations that has cut me a check and paid me for my efforts is going to claim that expense on their taxes in the spring of 2011, and that money is going to have to turn up somewhere else. While I didn't fill out a W2 for the speaking engagement, I did fill out one for the TV production company, so I'm definitely going to show up on their books. They may very well mention my social security number in their taxes, so what happens when I act like I never received anything from them? Quite possibly an audit of my and my husband's taxes, that's what. And before anyone tries to get political here, let me say that I've never seen any difference in this situation regardless of what political party is in the White House or is in charge of the national or state Congress--taxes on this kind of income is 30% to 40%, give or take a few.

I mention this on Intern 101 because I imagine that some of you have taken on extra or side jobs in order to make ends meet in this economy, much as I have. Depending on how that income was given to you, it will behoove you to consider the tax consequences of that income. Putting aside at least 30% of that windfall for a while does two things for you: one, it allows you to build up a little interest on it, depending on the kind of account you save it in; and two, it allows you not to be blindsided by the Tax Man come April.