Prediction Market Betting Hype and Self-Employment Taxes You Don’t Want to Miss

10:09Anna Helhoski:Yeah, there has.

10:10Sean Pyles:So all of this is leading to a really new world for sports betting. Can you talk us through how it's changing?

10:15Anna Helhoski:You're seeing these commercials for things like DraftKings 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. App betting has just become normalized, and prediction markets have also exploded in both volume and visibility. So last year following the Super Bowl, DraftKings reported that it set a new record for the amount that customers spent betting with them at$436 million. Wow. Yeah.

10:46Sean Pyles:On a single game.

10:47Anna Helhoski:On 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 Calci and the first for Polymarket. Are any of you guys betting in the Super Bowl?

11:08Sean Pyles:No.

11:08Anna Helhoski:No comment.

11:09Sean Pyles:You mean, are any of you betting on the Bad Bunny concert? No. I hear there's some game going on around it.

11:16Anna Helhoski: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 wagers on all kinds of things, like medal 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.

11:52Anna Helhoski:We're still waiting to see what the AGA predicts for this year's tournaments, but it's likely to be pretty high.

11:57Elizabeth Ayoola:Ana, 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.

12:08Anna Helhoski:So, I mean, that's what we're paid to do, right? We're paid to think about how this actually can affect people and 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 too. 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.

12:51Anna Helhoski: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. too.

13:08Sean Pyles:Yeah, I'm among that 40 % of people, and I don't even care about sports besides the Olympics. Okay, so Ana, 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.

13:26Anna Helhoski: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.

13:51Sean Pyles:And what's a good place for people to get that help?

13:53Anna Helhoski:Yeah, a good place to start is probably the National Council on Problem Gambling. And you can call them at 1-800-MY-R-E-S-E-T. That's 1-800-MY-R-E-S-E-T. There are also typically area-specific support options that'll be likely listed on your state's website.

14:09Elizabeth Ayoola:Well, thank you so much, Ana. 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 901-730-6373.

14:51Elizabeth Ayoola:In case you missed it, it's 901-730-NERD. We love emails. Please send them to us at podcast at nerdwallet.com.

14:59Sean Pyles: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.

15:26Elizabeth Ayoola:Today's episode is sponsored by Spectrum Business.

15:28Sean Pyles:Picture this. You're running a business and the internet drops during business hours. Your to-do list instantly becomes one, panic. Two, stare at the router like you're negotiating with it.

15:39Elizabeth Ayoola:And three, start offering customers a brief moment of mindfulness while the checkout screen loads.

15:44Sean Pyles:For business owners, being connected isn't a perk. It's how you take payments, talk to clients, and keep things moving.

15:50Elizabeth Ayoola:Spectrum Business keeps businesses connected seamlessly with fast, reliable internet and advanced Wi-Fi, plus phone, TV, and mobile services if you need them.

15:59Sean Pyles:And Spectrum Business offers 100 % U.S.-based customer support 24-7 to help you stay up and running. That means you get actual help, not submit a ticket and hope for the best.

16:09Elizabeth Ayoola:Our colleague Carrie is a Spectrum customer, shout out to our social media team, and she told us that she chose Spectrum because people online kept recommending it as a reliable and affordable option for internet and phone service.

16:21Sean Pyles:Carrie told us she was actually a little hesitant to switch at first because she'd been using a different service for a while. But after a year with Spectrum, she's had a really good experience. Her phone gets strong, reliable service, and it automatically connects to Spectrum Wi-Fi everywhere.

16:34Elizabeth Ayoola:Join the millions who rely on Spectrum Business. Visit Spectrum.com slash business to learn more. One more time, that's Spectrum.com slash business.

16:43Sean Pyles:Restrictions apply. Service is not available in all areas.

16:47Elizabeth Ayoola:My day kicks off with a refreshing Celsius energy drink, then straight to the gym. Pre-K pickup, back home to meal prep. Time for my fire station shift. One more Celsius, gotta keep the lights on. When the three alarm hits, I'm ready. Celsius. Live, fit, go. Grab a cold, refreshing Celsius at your local retailer or locate now at Celsius.com.

17:11Sean Pyles: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 of any advice on 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.

17:45Sean Pyles:Also, in the past year, I've invested in a Roth IRA and high yield 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.

17:58Elizabeth Ayoola: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.

18:16Sean Pyles: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.

18:23Elizabeth Ayoola: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.

18:37Sean Pyles: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.

18:56Elizabeth Ayoola:Finally, something that we can share. Yes.

18:59Sean Pyles:Well, the listener seems to have three primary questions. One, how to navigate their tax status. Two, how to set up 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 as single and filed their contract work on their personal taxes, which isn't uncommon.

19:29Elizabeth Ayoola: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.

19:42Sean Pyles: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. There's 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.

20:20Sean Pyles:And most self-employed people report business income on their personal tax return, as the listener did previously.

20:26Elizabeth Ayoola: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 gonna 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?

20:50Sean Pyles:Okay, I'm going back into my CFP knowledge because I haven't touched this stuff in a little bit. But here they are. Sole proprietor, partnership, LLC, C-Corp, and S-Corp.

20:59Elizabeth Ayoola:Ding, ding, ding!

21:01Sean Pyles:We need some confetti, some kazoo or something. Yeah, throw in all the sound effects here, please.

21:09Elizabeth Ayoola:all right so sean you did get all those right but you do not win anything but bragging rights i'm sorry okay 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. Sole 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.

21:46Elizabeth Ayoola:I know, very boring, but all has its 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 listener's 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.

22:14Sean Pyles: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 S Corp to reduce your tax bill. Can you talk about how that worked?

22:33Elizabeth Ayoola: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 yourself.

23:03Sean Pyles:So why did you make this change then?

23:04Elizabeth Ayoola:Well, the long and short is my tax person told me to do it to save money.

23:08Sean Pyles:Following your advice of listening to a tax professional here.

23:11Elizabeth Ayoola: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 their net earnings.

23:34Sean Pyles:Gotta love that hyper specific number. Yes.

23:36Elizabeth Ayoola:I know, right? It's so specific.

23:38Sean Pyles: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.

23:50Elizabeth Ayoola: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.

24:22Sean Pyles: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 where 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.

24:46Elizabeth Ayoola: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.

25:21Elizabeth Ayoola:And that was it. So I don't pay estimated taxes.

25:23Sean Pyles: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?

25:38Elizabeth Ayoola: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.

25:50Sean Pyles: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.

26:08Elizabeth Ayoola:People do use Quicken. There are so many. We actually have on the NerdWallet website a list of different kind of softwares that you can use to keep track of your expenses.

26:15Sean Pyles:Love the plug.

26:16Elizabeth Ayoola: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 and 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 use. So my office space, and there's some calculation that's done and you can get some deductions for that. So you want to check that list and make sure you have receipts for everything.

26:48Sean Pyles: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 you. So do not run a file of that.

27:02Elizabeth Ayoola: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.

27:44Sean Pyles: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 for retirement, but also do keep track of those contributions too that can help you reduce your taxable income.

28:00Elizabeth Ayoola:I use a SEP IRA and it does help reduce my taxable income every year.

28:04Sean Pyles: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 where your business activities?

28:25Elizabeth Ayoola:When I first started, I did not have separate accounts. So I was commingling all my monies. And when I tell you it was a stressful and frustrating come 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.

28:43Sean Pyles:So now you've gotten organized and you keep it totally separate, right? Are you doing any commingling nowadays?

28:48Elizabeth Ayoola:I'm not doing any commingling, Sean. I'm learning from you. Be organized.

28:52Sean Pyles:Proud of you.

28:52Elizabeth Ayoola: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, sole 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?

29:21Sean Pyles:Maybe you need to hire a new accountant, Elizabeth, because that's a pretty big oopsie.

29:26Elizabeth Ayoola: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?

29:31Sean Pyles:Yeah. How are you going to make it right for this year?

29:33Elizabeth Ayoola:Exactly.

29:34Sean Pyles:The year where the issue happened.

29:35Elizabeth Ayoola:Exactly.

29:36Sean Pyles:Are you still working with them?

29:37Elizabeth Ayoola:No, no. Okay. No, absolutely not.

29:40Sean Pyles:Yeah.

29:40Elizabeth Ayoola:But luckily, I was able to waive the fee thanks to the first-time penalty abatement, aka the FTA.

29:47Sean Pyles:So, Elizabeth, that's a really jargony term. what is first-time penalty abatement?

29:51Elizabeth Ayoola: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.

30:07Sean Pyles: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-yield savings account. Elizabeth, kick us off with the IRA side of things?

30:18Elizabeth Ayoola: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.

30:39Sean Pyles: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 for retirement and potentially pay less in taxes, consider funding an IRA.

30:58Elizabeth Ayoola:Since the listener is employed and doing contract work, I want them to keep an eye on the Roth 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.

31:22Sean Pyles:Now let's turn to that high yield 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.

31:36Elizabeth Ayoola: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-INT. 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.

32:02Sean Pyles:Yeah, I was very lucky to put a lot into my high-yield 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 INT, which 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.

32:25Elizabeth Ayoola:I agree. I agree. Something is better than nothing.

32:28Sean Pyles:Absolutely.

32:29Elizabeth Ayoola:Listener, we hope that we answered your question and we hope the rest of you listeners to learn something about filing taxes as a self-employed person.

32:36Sean Pyles: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 our way. 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 nerdwallet.com.

32:56Elizabeth Ayoola: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.

33:09Sean Pyles:Here's our brief disclaimer. We are not your financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.

33:19Elizabeth Ayoola:This episode was produced by Tess Viglin and Anna Helhowski. Hilary Georgie helped with editing. Nick Karismi mixed our audio and a big thank you to NerdWallet's editors for their help.

33:29Sean Pyles:And with that said, until next time, turn to the nerds.

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