Side Gigs: Why I don’t have one, and the only one I recommend

Many, actually most FIRE bloggers I have followed preach the Bible of Side Gigs.  In fact, I cannot think of a FIRE blog that doesn’t at least recommend side gigs, with most pushing the idea, but following my FIRE pathway, side gigs are just something that actually will limit your ability to reach your FIRE destination.  Remember on my pathway, reduction of work is key to qualify for government programs, reduce your overall tax burden, but most importantly give you hours in your day to spend with the ones you love.  So let me explain the multiple reasons why you shouldn’t have a side gig, with one exclusion.

First and foremost, when I see FIRE bloggers push side gigs, or some who even explain their side gigs, they conveniently neglect to talk about the tax burden that should be incurred with side gigs.  My gut feeling is because many of these side gigs are actually “under the table” type of jobs.  Remember, one of the first things I ever talked about was how to do this process LEGALLY, and intentionally underreporting income is not only unethical, it is illegal and we want to complete our FIRE journey legally.  The last thing you want is an IRS audit into how you managed to pay off that massive amount of debt on your extremely limited income, a day I see coming for some fraudulent FIRE bloggers based on their claims published by nationally recognized news agencies. Good luck explaining to the IRS how you paid down more debt in a year than possible according to your tax returns.  As discussed in “Beware the Fraudulent Blogger,” the math doesn’t add up for some of these bloggers meaning either they aren’t telling the entire truth, or are hiding income obtained from side gigs both of which risk discrediting the FIRE movement.  

If you do a side gig legally and ethically, you will incur a tax bill, as your income in most cases should be subject to your federal income tax, FICA tax, and state income taxes.  This is a lesson I learned the hard way, which is why I will never have a side gig again.  When I first moved to Alaska, I decided to go into commercial crabbing as a side gig.  It seemed fun, rewarding, and people made tens of thousands of dollars in a few short weeks.  Not knowing the business side of the endeavor, I bought my boat, permit and all equipment necessary to fish, but I underestimated the true cost of completing the side gig until I sat down with my CPA at the end of the season.  I discovered that my side gig was subject to my 28% federal income tax bracket, FICA taxes, and a 3 percent fisheries tax, meaning I was paying a 46% cumulative tax on all of my fishing earnings.  Since I had taken depreciation, when I stopped fishing I then had to recapture those dollars, a process that took me 2 years to complete and cost me thousands of dollars in CPA fees and recaptured depreciation.  Remember time is your most valuable asset, and giving up time away from family isn’t worth nearly 50% of the income you could potentially make from your side gig.

Liability is another huge factor to consider when working a side gig, especially in today’s sue happy culture.  Working in healthcare and growing up on a farm, I worry about liability more than most people.  Let’s say you have a side gig flipping old cars.  Should you fix the car up and sell it to somebody who then crashes it a week later, you could be held liable for damages.  Even if you aren’t held liable, you could spend thousands if not tens of thousands of dollars fighting it in court, so to me, most side gigs aren’t worth the risk especially when all other POS’s are considered.  Stick with your primary occupation, in which your employer already carries the insurance for you, or make sure you acquire some form of insurance to cover you should anything go wrong with a side gig.  

Due to the progressive nature of taxes, the more successful your side gigs, the more it will cost you in federal tax dollars.  Your side gig could easily kick you into a higher tax bracket, while excluding you from programs such as the COVID19 relief checks, student loan interest deductions, Medicaid, and hundreds of other POS’S.  Since our goal here is to legally reduce taxable income while enjoying life, you should focus on increasing your happiness by doing the things you love with those you love in your free time, not working harder. With one exception, side gigs should be something that only exist after you have obtained financial independence, after leaving the traditional workforce, as a way to enjoy life doing something you enjoy.

The only side gig I will ever support before obtaining financial independence, and highly recommend is flipping your primary residence every 2 years.  Currently, you can buy a home, and flip it, and keep up to a half a million dollars of profits tax free!  This has been the best side gig I have ever seen on my pathway to financial independence.  Here is how it works.  You can buy a home and as long as you use it as your primary residence, you can sell it and keep all profits up to 250,000.00 for an individual and 500,000.00 for a married couple.  These figures are calculated after expenses meaning if a married couple buys a home for 250,000.00 and spends another 250,000.00 in remodeling and repair costs, they could then sell the home for 1,000,000.00 and keep every penny from the sale tax free!  This system is also prorated, so if you live in the home for 1 year, you can keep half of the limits, free of tax.  Since you need a place to sleep at night, and you don’t want to waste your money on rent, this particular side gig offers you a 2 for 1 deal.  This system is the only opportunity I know of where every American homeowner has the potential to make tens or hundreds of thousands of dollars tax free, while working a side gig that’s literally in their living room.  

In conclusion, remember that time is your most valuable asset.  You only have so much time on this Earth, and you need to spend it doing things you love with those people who you love.  You will never regret spending more time with family and friends.  One of the biggest complaints I’ve heard from nursing home residents over my past decade in the field is how they wish they had spent more time with family and less time working.  If you do a side gig correctly, its likely that you should be paying federal and state income tax as well as FICA tax. It isn’t worth your time to work hard then lose half of your earnings to the government so they can squander it, spend time with your family instead.   If you’re determined to have  a side gig, explore flipping your primary residence every two years as a way to both give you shelter, and make tax free dollars for your hard work.  If you choose another side gig, make sure to consider liability insurance to protect yourself and your assets.  Thanks to POS’s like our progressive tax structure, most side gigs aren’t financially worth your time, and you don’t want to draw the attention of the IRS for failing to report a side gig appropriately.  Remember the key to my strategy is to reduce taxable income to just under the thresholds for Medicaid qualification, and having a side gig will inherently increase your income, risking exclusion from the program.