NerdWallet's Smart Money Podcast - Prediction Market Betting Hype and Self-Employment Taxes You Don’t Want to Miss

Episode Date: February 5, 2026

Learn how to plan for self-employment taxes and understand how savings interest can affect your tax bill. How can sports betting apps affect your finances? How do you set up taxes for 1099 contract work? Hosts Sean Pyles and Elizabeth Ayoola discuss self-employment taxes to help you prepare for tax season and avoid surprises. But first, senior news writer Anna Helhoski joins them to discuss the rise of sports betting and prediction markets. They break down how legal sports betting expanded after a 2018 Supreme Court decision, how app-based betting and prop bets make it easy to wager in real time, and the growing concerns around addiction risk, regulation, and the nonstop flood of betting ads. Then, Sean and Elizabeth dig into tax prep for contract work, including how business structure can affect self-employment taxes, ways to pay during the year through quarterly estimated payments or adjusting W-2 withholding, and how to stay organized with bookkeeping, deductible expenses, and forms like 1099-NEC. They also cover what to expect tax-wise with a Roth IRA and why high-yield savings account interest is typically taxed as ordinary income (often reported on Form 1099-INT). Use NerdWallet’s free calculator to estimate your self-employment tax: https://www.nerdwallet.com/taxes/calculators/self-employment-tax-calculator  Want us to review your budget? Fill out this form — completely anonymously if you want — and we might feature your budget in a future segment! https://docs.google.com/forms/d/e/1FAIpQLScK53yAufsc4v5UpghhVfxtk2MoyooHzlSIRBnRxUPl3hKBig/viewform?usp=header In their conversation, the Nerds discuss: self-employment taxes, 1099 contractor taxes, estimated taxes, quarterly estimated tax payments, Form 1099-NEC, Schedule C, Schedule SE, sole proprietor taxes, S corp vs LLC taxes, S corp reasonable salary, self-employment tax rate 15.3%, net earnings self-employment tax, W-2 withholding for side hustle, Form 1040-ES, bookkeeping for freelancers, deductible business expenses, home office deduction, business bank account, separate business and personal finances, business credit card for expenses, tax deadline for S corp, first time penalty abatement, IRS penalty abatement, Roth IRA taxes, Roth IRA income limits 2026, Roth IRA phase-out, traditional IRA tax deduction, SEP IRA, SIMPLE IRA, tax forms for freelancers, Form 1099-INT, high-yield savings account taxes, sports betting taxes, sports betting apps, DraftKings, FanDuel, prediction markets, Kalshi, and Polymarket. To send the Nerds your money questions, call or text the Nerd hotline at 901-730-6373 or email [e-mail]. Like what you hear? Please leave us a review and tell a friend. Learn more about your ad choices. Visit megaphone.fm/adchoices

Self-employment can be lucrative. It can also be expensive if you don't plan for taxes. This episode, learn about how to navigate self-employment taxes. Welcome to Nerd Wallet's Smart Money Podcast, where you send us your money questions, and we answer them with the help of our genius nerds. I'm Sean Piles. And I'm Elizabeth Ayola. Later this episode, we'll be talking about navigating self-employment taxes.

But, first of all, we have our weekly money news roundup, where we break down the latest in the world of finance to help you be smarter with your money. Now, there are some huge athletic events coming up. All gather here if you're a sports fan. The Winter Olympics in Milan officially begins on Friday. The New England Patriots and the Seattle Seahawks are facing off at Super Bowl 60 on Sunday. And NCAA March Madness is just on the horizon. So today we're talking about the rise of sports betting.

and what happens when betting apps stop feeling like a game? Our news colleague Anna Hilhouski is here to dig into it with us. Hey, Anna. Hey, Elizabeth and Sean. Yeah, the Super Bowl, Olympics, March Madness. We've all seen that before. Betting on sports also isn't particularly new. But what's changed is how easy it is to bet instantly on your phone in real time while the game is happening.

So a January 26th report from Ipsos found that the share of Americans who have placed a bet on a live sporting event has doubled since 20. 2022. It found that 17% of American surveyed had placed a legal sports bet up from 13% in 2024 and 8% in both 22 and 23. So, Anna, can you give us some background on this? Because it's all pretty new, this huge rise in sports betting, right? Yeah. Or at least legal sports betting, I should say. Correct. So before 2018, legal sports betting was pretty much limited to Nevada. So you're in Reno, you're in Vegas. That's where you can bet. And it meant that the illegal sports betting market was thriving. Then in 2018, the Supreme Court ruled in Murphy versus NCAA that the states have the authority to decide what laws remain in force in their own states, which meant they could legalize,

regulate, and tax sports betting. And that last one is really key. States saw legal betting as an opportunity to earn revenue. And today, sports betting is mainstream, and more than 30 states and D.C. will allow some form of legal sports betting. And that includes mobile apps and online wagering. Wow, that's over half of the states that allow legal sports betting now. Yeah, it's everywhere.

Anna, talk us through app-based betting because betting is becoming so accessible. People can literally do it on their phones now using an app. App-based sports betting is dominated by companies like Draft Kings, Fandul, BetMGM, and Caesar's Sportsbook. And these apps work by letting users place wagers before and during events. Now, the sports books set odds that reflect probabilities and public betting. and then an algorithm adjust those figures. But they become so popular that at any point, these apps are handling millions of transactions at once.

Wow. This is a world I am so not a part of, and that's fascinating to me. What I also find really intriguing is just the variety of bets that you can make. It's not just simply which team is going to win, right? So, Anna, talk us through the different types of bets that people might be able to make. So there are a lot of different types of betting

you can make at legal sports books. And I do want to say a couple of caveats. So I don't have to repeat it every single time. If you win in any of these cases, you're going to get the amount that you bet in return along with your winnings. And then another one, betting lines and odds are always changing. Remember those algorithms. And sportsbooks will adjust them in real time.

So by the time that you're listening to this, the numbers that I'm quoting might be slightly different. So if you go and check and they're not the same, don't get mad at me. All right. So starting off, money lines are the simplest. You're just going to pick who wins the game. Now, Draft Kings shows that for the Super Bowl, the Cs, Seahawks are the heavy favorite at minus 240. And that means that you'd have to bet $240 to win $100.

Once again, you'd get your $240 back. The Patriots are the underdog at plus $195. And that means if you made a $100 bet and the Pat's upset, you'd win $195 and get your $100 back. I have never done sports betting myself, but this sounds like the most straightforward kind of betting. and if I were to do it, it would probably be this. Again, it's the easiest, it's the simplest, and you're just saying, who wins? Okay, so what's maybe a step more complex than this one? So the points spread. The favorite has to win by a certain number of points

or the underdog loses by less than that in order for you to win. There's also an over-under, and that's known as totals. This is how it works. Instead of picking a winner, you're going to be betting on the combined total score of both teams. Now, the sports books set a number

and you wager if the actual total will be higher or lower, hence over-under. So for Super Bowl 60, Draft Kings puts the over-under set line at 45.5. If you want the over, you're going to be betting that the two teams together will score 46 points or more. If you want the under, you're betting the total will be 45 points or less. So you're kind of losing me here, but this is why I don't follow sports, but we'll just roll with it. I want to talk now about props, because this is a form of betting that I find really fascinating, just by the sheer number of options, which seems to be infinite. Yeah, this is definitely like the weirdest world in sports betting.

So props focus on really specific things happening in a game. There are novelty bets along with this. Who's going to win the coin toss? Who's scoring a touchdown? What color is the gatorade that the players pour on their coach's head when they win, etc? Here's one of the real wagers that Draft Kings is showing right now. The bet is on whether the jersey number of the first player to score a touchdown is higher or lower than 10.5. Over 10.5 means that you think the player's numbers will be 11 or higher.

That's the favorite outcome. So you'd have to bet $160 to win $100. Now, under 10.5 means the player's jersey number is 10 or lower, which is less likely. But if you bet $100, then you're going to win $120 if it hits. And finally, one you may have heard of are parley's. And those bundle multiple specific bets together in order to get a bigger payout. But every single one of your picks has to win. So if you bet on three things happening, but only two hit, you lose.

I think a lot of people listening might be focused on how much money they could make or lose doing this. Me, I'm thinking about taxes here and the fact that people are probably going to have to pay taxes on their earnings. So what's going on with that? Taxes on sports betting can be really tricky, and we could probably fill a whole other episode on this. So I'm not going to dwell too much. But sports books will show the total that you get back. And that's your original bet plus your winnings. But for taxes, you're only going to be paying on the winnings.

You can also deduct losses, but only up to the amount that you won. Anna, I've been hearing a lot about prediction markets. And what I've been hearing is pretty wild because you can bet on almost anything under the sun. Talk us through prediction markets. Prediction markets are fascinating to me and I kind of won't shut up about them. So I'll try and keep it brief. App-based gambling has been around for a while. But in the last year or so, there's really been a pivot to prediction markets.

and that's like polymarket and Kalshi. And those turn your beliefs into tradable assets. So prediction markets let people make money by betting on real-world outcomes. You see it with things like elections, economic data, awards, weather, pop culture. But obviously sports are huge on these platforms. Now, here's how they work. They use tradable contracts that are priced to reflect the crowd's belief about the likelihood of something happening. So if you're right, you get a payout.

And if you're wrong, it's going to be. pretty much worthless. So let's look at something a little bit more specific in this case. So as of this recording, the Seahawks are at 68 cents, which means that the market thinks Seahawks have a 68% chance of winning. If you buy a yes contract at 68 cents and the Seahawks win, you get a dollar, which would be a 32 cent profit. Meanwhile, the Patriots are at 33 cents, and that means that the market thinks they have a 33% chance of winning. If you buy a yes contract at 33 cents and they win, you pocket 67 cents. It's fun, it's potentially profitable, but as with all betting, the losses are still very real. And something we've seen with platforms like

Cal She is that it's not just about what you believe might happen. Sometimes it's what you are rigging to happen. There have been some controversies in sports betting about this recently, right? Yeah, there has. So all of this is leading to a really new world for sports betting. Can you talk us through how it's changing? You're seeing these commercials for things like Draft Kings everywhere. It's become ubiquitous. None of this existed at scale five years ago, and I think it's sometimes difficult when we just see things all the time that you forget how quickly they change. Now, app betting has just become normalized, and prediction markets have also exploded in both volume and visibility. So last year following the Super Bowl, Draft Kings reported

that it set a new record for the amount that customers spent betting with them at $436 million. Wow. Yeah. And a single game. And a single game on a single day. Now, the American Gaming Association expects that roughly $1.76 billion will be legally bet on the Super Bowl 60 in the U.S. That's a 27% year-over-year increase and a record number. This year is also going to be the second Super Bowl for Kalshi and the first for Polly Market. Are any of you guys betting in the Super Bowl?

No. No comment. You mean, are any of you betting on the Bad Bunny concert? Here there's some game going on around it. Now, there's something else obviously happening, and we mentioned it up at the top, the Winter Olympics, they're starting, and there are 116 events. That creates a lot of opportunity for wagers. During the Summer Olympics in Paris a couple years ago, betting really spiked, and people were making wages on all kinds of things like metal counts by country to specific athletes. Now, here's a weird one.

The proverbial Super Bowl of sports betting is actually March Madness. And last year, the American Gaming Association estimated that Americans' legal wagers would hit $3.1 billion on men's and women's college basketball tournaments during March Madness. We're still waiting to see what the AGA predicts for this year's tournaments, but it's likely to be pretty high. Anna, as you're talking, all I can think about is risk, risk, risk, risk, risk, and also how addictive gambling can be. Talk to us about the risks involved with all of this betting. Right. So, I mean, that's what we're paid to do, right? were paid to think about how this actually can affect people in their finances. The concerning

thing about these apps is how frictionless they are. It's legal. It's on your phone. It's easy for the casual better to get drawn in. But apps are addicting. We know that they are. Gambling can be two. So then combine the two with some highly energetic sports fans and it can become a problem. There are also regulatory concerns, concerns about gambling addictions, debates about tax rates, and a lot of public frustration with the ubiquity of ads. Now, a Pew Research Survey published in October found that while half of Americans didn't see legal sports betting as good or bad for society, an increasing number of Americans do view it as harmful. And that's 43% in 2025, up from 34% in 2022.

There's also concern about sports betting impacting the integrity of the game. A Pew Research Survey published in October found that 40% of Americans think sports betting is bad for sports, up from 33% in 2022. Yeah, I'm among that 40%. percent of people. And I don't even care about sports besides the Olympics. Okay. So, Anna, how can people protect themselves? Because we know that people love sports betting. It can be a recreational activity. If you budget for it, it might not be a bad thing, but there are still a lot of risks as we were just talking about. Right. There's a slippery slope. And I'm not going to sit here and judge people.

I'm not going to say, don't gamble. If you want to gamble, you're going to do it. But there are very real concerns to consider. So, as you said, treat it like entertainment, not income. decide what your limits actually are before you go into it. If you're not having fun, stop doing it and go do something else that is fun. And most of all, if it's not feeling within your control anymore, you might need to seek help. And what's a good place for people to get that help? Yeah, good place to start is probably the National Council on Problem Gambling. And you can call them at 1-800, M-Y-R-E-S-E-S-E-T.

That's 1-800, My Reset. There are also typically area-specific support options that will be likely listed on your state's website. Well, thank you so much, Anna. I will not be betting on the color of Gatorade, and I will instead be using my money to buy tacos and margaritas. There you go, far more practical. All right. Up next, we answer listeners' question about navigating self-employment taxes, and I will be sharing my tax blunders as a self-employed person. But before we get into that, a reminder to send us your money questions. Do you want to know how to budget for your leisure activities? Maybe you want to know how to save for a summer vacation, or you're in the market for a new credit card. Whatever your money question, we want you to send it to us, and you can do that by calling us and leaving us a voicemail or texting us on the nerd hotline at 901-730-63. In case you missed it, it's 901-730 NERD.

We love emails. Please send them to us at podcast at nerdwollet.com. You can also leave us a comment on Spotify or YouTube. And speaking of taxes, we're doing a whole episode about tax season 2026. So if you have any questions about taxes this year, I'm sure you have a pile of documents just staring at you on your desk. I know I do. Let us know. So send us your question any way you want to.

And we'll answer it in a few weeks. Okay. In a moment, this episode's money question. Stay with us. A tins donut and coffee is the original collab. And now, any classic donut is a dollar when you buy any size original or dark roast coffee. Get a deal on the iconic duo with a tins dollar donut plus tax at participating restaurants for limited time. Terms apply.

See, app for details. We're back and answering your money questions to help you make smarter financial decisions. Here's this episode's listener question. Hi, Elizabeth and Sean. I would like to know if you have any advice and how to navigate tax status for contract work. Previously, when I did contract work, I received Form 1099 NEC, if I'm remembering correctly. During that time, I paid estimated taxes during the year and noticed additional tax for self-employment, but I only filed as single and personal taxes.

I'm looking back into doing contract work again and curious if there is any guidance you can offer on tax setup. Also, in the past year, I've invested in a Roth IRA and high-held savings account. Is there any guidance on how to anticipate and prepare for taxes with these accounts? Thank you for your nerdy advice, double exclamation point. Thanks for the detail, Sean. This is a loaded question, like a loaded sandwich. I'm hungry. All right.

So Sean and I are tackling this question solo today. And that's because the tax team is busy getting us prepped for our favorite season, tax season. This is your chance to say yay, Sean. Yay. I'm more into the tax refund side of things, but, you know, it's an important time of year, whether we like it or not. Now, back to the question for today. I nerded out when I read this question because I have so many related lived experiences, which I'm going to share later in the episode.

Now, Sean, you are officially a business owner now yourself, so you might have some related experiences too. I think I'm about to have some horror stories of my own, potentially. This is my first time filing taxes as a business owner, and I got married last year. So I'm going to be in a whole different world of filing my taxes. I'm excited about it. I'm a little bit nervous. I wouldn't be surprised if I have an unexpected bill, but we'll talk about that when the time comes. Finally, something that we can share. Yes. Well, the listener seems to have three primary questions. One, how to navigate their tax status. Two, how to set up the their taxes, and three, how savings and investment accounts might impact their tax bill. So let's start by talking about tax status, which defines your household situation for the IRS. Our listener wants to know how to navigate their tax status for contract work and mentioned in their message that previously they filed a single and filed their contract work on their personal taxes, which isn't uncommon.

No, it's not. I personally think that determining your tax status is pretty straightforward, but actually, I did read on the IRS website that incorrect filing status is one of the most common mistakes that people make. So maybe I am mistaken. Well, it can get confusing because there are five different filing statuses. People may not be aware of that. So let me just tick through them super quickly. They're single. There's married filing jointly. There's married filing separately. There's head of household. There's also qualifying surviving spouse. So some of these are pretty specific niche circumstances. But knowing which one might be best for you isn't always super clear cut. Now, being self-employed, whether part-time or full-time, shouldn't impact your tax filing status all too much. But the filing status you choose can affect things like your tax rate, your standard deduction, tax credits, other deductions. And you really do want to get this right. And most self-employed people report business income on their personal tax return, as the listener did previously. Status aside, another important thing that you should be aware of when you're filing your taxes as a contractor is your self-employment category.

Elizabeth, bro, what are you talking about? I'm going to explain soon. So you need to know which category that you fall into so your income is properly reported to the IRS. Now, the IRS recognizes five primary business categories. All right, Sean, pop quiz, Mr. CFP, what are they? Okay, I'm going back into my CFP knowledge because I haven't touched this stuff in a little bit,

but here they are. Full proprietor, partnership, LLC, C-Corp, and S-Corp. Ding, ding! Ding! We need some, like, confetti, some like a kazzo. or something. Yeah, throw in all the sound effects here, please. All right. So, Sean, you did get all those right, but you do not win anything but bragging rights. I'm sorry. And sound effects. I do want to add that the business categories also tell you what forms you need to file with your personal income tax return, which is also

important. The listener sounds like a sole proprietor, which is a business that hasn't been registered as a legal entity and that's separate from the person who owns it. And you might also hear that being called an incorporated business. Soul proprietors likely need to file using Form 1040, and then they report their business income and calculate self-employment taxes using Schedule C and SE. I know, very boring, but all has this purpose. Many people fall into the sole proprietor category, such as independent contractors and gig workers. All of this can get really confusing, real fast, so it may be best to consult a tax professional before filing like I do every year. On that note, let's answer the listeners' question on tax setup as a self-employed person.

This is so important. I can't emphasize how important this is because you do not want to end up in the IRS's Blackbook. And we have a few tips that can help people figure this out. So first one is choose a business structure where you need to. You know, not everyone needs to register a business, but doing so could actually help you save on taxes. And Elizabeth, I know that you actually changed your tax status from an LLC to an X-Corp to reduce your tax bill. You talked about how that worked? I sure did.

And again, I am not a tax professional, so please don't run if you have an LLC and you're trying to reduce your tax bill and copy me. But I will say that it did cut my tax bill in half. Self-employment taxes are high. You're paying your part and what an employer would pay. And currently, that's 15.3% on net earnings of $400 or more. So that can get pretty pricey. And that's basically Social Security and Medicare payments that, again, an employer would

usually handle for you, but you're doing your. So why did you make this change then? Well, the long and short is my tax person told me to do it to save money, but... Following your advice of listening to a tax professional here. That's right. But I did do some research myself, of course. Now, how it saved me thousands of dollars with an S-Corp, you only pay self-employment taxes on whatever, in quotes, is a reasonable salary according to the IRS that you pay yourself. But the rest of your profit is exempt from self-employment taxes. But as an LLC, you have to pay self-employment taxes on 92.35% of net earnings. Got to love that hyper-specific number, yes. I know, right? It's so specific. And again, this really underscores how important it is to just talk with a tax professional, maybe just hire someone for a season or every year if you want to and just have someone do this heavy lifting for you because you don't want to get something wrong. All right. So the next thing, I actually really like this one because, again, it was a real-life learning, but decide on how

you're going to pay taxes throughout the year. My first year as an LLC, I did not know anything about estimated taxes because I didn't check, so I wasn't paying them. But luckily, I was withholding enough from my W-4, so I didn't end up being fined by the IRS. But with that said, you are required to make quarterly estimated taxes by the IRS, and you can make those payments using IRS Form 1040 ES. So note that estimated tax payments are what they say. They're estimated. So you could end up paying a little bit more come tax time or possibly getting a refund, depending on you land at the end of tax season. The listener mentioned that they previously paid estimated taxes throughout the year, and it's common to do it quarterly. But then they also had to pay additional

self-employment taxes when they filed. So they probably underpaid their taxes there. That's what that sounds like to me. Sounds like that to me too. But I will say if you're going to DIY, use a self-employment tax calculator to make sure that you're withholding or rather paying enough estimated taxes. Now, I say withholding because I'm excited to get to my next point, because I save myself a lot of time by doing this. Now, another option that you have, if you happen to have a 9 to 5 like myself, is to withhold enough taxes from any W-2 income that you might have. So I spoke with my tax professional, and they actually helped me calculate how much I should withhold from my W-2. And all I had to do was submit a new W-4 with my new withholding. And that was it, so I don't

pay estimated taxes. That also makes me think that it's really important to be on top of how you're tracking your income and your expenses for your business that leads us to talking about having an accounting or bookkeeping system in place to follow all of this so you don't miss something. How do you track your expenses for your business, Elizabeth? I am pretty straightforward. I just use an Excel sheet because I generally do not have many expenses. I am a one-man band and I just do some contract work. So I just don't really have that much to keep track of. Yeah, I'm in the same boat for my firm. I mean, I just got my firm started midway through 2025 and then I had that whole like getting married and going on a three-week honeymoon thing.

So I didn't have a lot of income and expenses for my business. Maybe going into this year, depending on how things go, I might adopt something like Quicken, which I know a lot of people love. People do use Quicken. There are so many. We actually have on the NerdWallet website a list of different kind of software that you can use to keep track of your expenses. Love the plug. Yes, we love a plug.

All right. Speaking of which you want to keep track of your deductible expenses, when you're doing bookkeeping, you want to keep your receipts on whatever that you're spending. The IRS also does have a list of deductible expenses in categories such as your home, your vehicle, energy, travel, and more. One of the most surprising things that I saw that I could deduct was the actual space that I used, so my office space, and there's some calculation that's done, and you know, you can get some deductions for that. So you want to check that list and make sure you have receipts for everything. But make sure you're doing it correctly, because a lot of folks might think, oh, I can just deduct my

entire apartment or my house because I work here. No, the IRS has some pretty specific definitions of how the space is used or not used, so do not run a foul of that. And my second to last tip is you want to keep track of all the tax forms that you need when it's time to file. At one point, I think I had like four or five clients all at once, and those were freelance writing clients, and I was getting tons of 1099 NECs, and I had to make sure I kept track of all of those and use them when I was filing my taxes. People who receive at least $600 in non-employee compensation should receive a 1099 NEC from the person who was paying them. And I also want to point out that the one big beautiful bill has changed that threshold from $600 to $2,000 in 2026. So if the listener makes

under that amount, they may not receive a form, but they still do need to report that income. People should also consider contributing to a retirement savings account for self-employed people. This could be a SEP, which is a simple employee pension or a simple IRA. And this can help you save a retirement, but also do keep track of those contributions, too, that can help you reduce your taxable income. I use a SEP IRA, and it does help reduce my taxable income every year. And one really big thing to emphasize, too, is to avoid co-mingling funds from the business side of your operation and your personal finances. So I would recommend opening a separate account for business expenses, if possible, that can help you track them more easily and have a paper trail. and just avoid having your own personal income potentially be in the hands of the IRS for your business activities.

When I first started, I did not have separate accounts. So I was commingling all my monies. And when I tell you, it was stressful and frustrating income tax time going through all my statements and trying to figure out which was business and which was personal. So opening a business account was a lifesaver and also having a business credit card so that I can see where all my expenses are. So now you've gotten organized and you keep it totally separate, right? Are you doing any commingling nowadays? I'm not doing any commingling, Sean. I'm learning from you.

Be organized. Proud of you. I do want to put it out there that you guys should be aware of the tax deadline and give yourself enough time to prepare and file. I had a horror story last year. I was fined over $2,000 by the IRS because I converted my business, like I said earlier, from an LLC, sold proprietorship to an S-Corp to save on taxes, and I didn't realize that the tax deadline was different.

Just by a month. Yep. March versus April. And guess what? Apparently my accountant didn't know that either. Can you believe that? Maybe you need to hire a new accountant, Elizabeth, because that's a pretty big oopsie. Right? And he's like, don't worry, we're going to fix it next year. How are you going to give me $2,000 back? Yeah. How are you going to make it right for this year? Exactly. The year where the issue happened.

Exactly. Are you still working with them? No, no. Okay. No, absolutely not. Yeah. But luckily, I was able to waive the fee thanks to the first-time penalty abatement, aka the FTA. So, Elizabeth, that's a really jargony term. What is first-time penalty abatement? Well, essentially, it just lets qualifying taxpayers reverse the penalties for not filing a tax return or paying on time. So since I was basically a first-time offender, the IRS said, okay, you've paid all your taxes on time. This is your first time doing it. We'll let you slide. And I said a very hearty, thank you. Okay. Well, now let's get to the second part of our listener's question about preparing for taxes with a Roth IRA and a high-old savings account. Elizabeth,

kick us off with the IRA side of things. Well, the IRA side of things, I am glad to tell the listener, won't be a big deal because with specifically a Roth IRA, that's funded with after-tax money. So guess what? You don't have to pay any taxes come tax time. Yay. But even if it was a traditional IRA, you'd only be taxed if you made withdrawals from that account. And since we're all about reducing your taxable income on this show, it's important to know that a traditional IRA can help you do just that dollar for dollar depending on your income and your filing status. So this in turn could reduce your tax bill for the year, which is great. So if you're a contractor and you want to save retirement and potentially pay less in taxes, consider funding in IRA.

Since the listener is employed and doing contract work, I want them to keep an eye on the raw phase-out limits. Now, for 2026, if you are single and your modified adjusted gross income is under $153,000, then you can contribute the full amount. But for the most part, you don't need to worry about paying taxes on investments in the stock market come tax time unless you sell assets at some point during the year. Now let's turn to that high-old savings account. Unfortunately, our listener will likely have to pay federal and maybe state income taxes on the interest accrued in these accounts. This is the downside of getting that nice yield on your savings. That yield is considered ordinary income and it's taxed at your marginal tax rate. Sorry, it's not free money. Well, not exactly. You report it as regular income when you do your tax return.

The high-yield savings account provider will usually send form 1099 I&T. I get that every year if you've earned above $10. The form will let you know your interest income for the tax year. So you don't have to do any math around that. Yeah, I was very lucky to put a lot into my high-lid savings account last year. And I was looking at the interest coming in each month thinking, wow, I'm doing such a great job. And I'm sure I will be kicking myself a little bit when I get my 1099 I. we should be in the mail any day now.

Boo. But hey, I'm not going to stop putting my money into one of these accounts because it's way better than having it sit in an account that's giving me no interest at all. I agree. I agree. Something is better than nothing. Absolutely. Listener, we hope that we answered your question

and we hope the rest of you listeners to learn something about filing tax as a self-employed person. And I'm sure you probably have a lot more questions about filing your taxes this year. So as always, send your money questions, tax or otherwise, You can hit us up on the nerd hotline at 901 730 6373. That's 901 730 nerd.

You can text us or leave us a voicemail there. You can also email us at podcast at nerdwollet.com. We want you to join us next time to hear about paying for senior care. Follow smart money on your favorite podcast app. That's Spotify, Apple Podcasts, and IHeartRadio to automatically download brand new episodes. Here's our brief disclaimer. We are not your financial or investment advisors. This nerdy info is provided for general education.

educational and entertainment purposes and may not apply to your specific circumstances. This episode is produced by Tess Viglin and Anna Halhowski. Hillary Georgie helped with editing, Nick Kirstmi mixed our audio, and a big thank you to NerdWallet's editors for their help. And with that said, until next time, turn into the nerds.