4 Ways to Make Gig Work Less Taxing
4 Ways to Make Gig Work Less Taxing
You enjoy the freedom and flexibility of work in the gig economy, right? Well, then, there are few things you’ll want to make sure you’re doing to keep your gig from causing you tax headaches in the future.
Pay Estimated Taxes
You probably don’t think about taxes until April, but that could be a problem. As a gig worker, you’re an independent contractor. That means that Social Security and other taxes are not withheld from the money you earn. That doesn’t mean you don’t have to pay those taxes. You do. And, according to our system, you’re supposed to pay taxes as you earn income. That’s where estimated taxes come in. Estimated taxes are just what they sound like. Based on your 2017 income, your tax preparer can estimate the taxes you’ll owe in 2018. You can pay those taxes quarterly. This will help prevent you from getting slapped with an underpayment penalty. A survey by the National Association of Enrolled Agents found that underpayment of taxes was the No. 1 reason taxpayers receive an IRS notice for incorrect payment.
Take Your Tax Deductions
We’ve already established that you’re an independent contractor. That means you’re self-employed. That also means you may be able to deduct certain business expenses from your taxes. So, let’s say you drive for Uber. You can deduct the actual mileage your drive for the ride-sharing company. You can also deduct cellphone expenses related to your work for Uber. If you’re one of those nice Uber drivers who provides snacks for customers, you can take a deduction for those, too. Check out this guide to learn more about federal tax deductions that may be available to you as a gig worker.
No Paperwork Doesn’t Mean No Taxes
You didn’t get paperwork showing how much you earned from your gig work, right? That happens more often than you think. One survey found that 61 percent of gig workers did not receive a 1099 form showing their earnings. The businesses that pay you are not required to send you paperwork unless your income reaches a certain threshold. But, just because you don’t have paperwork doesn’t mean you don’t owe taxes. If you made $400 or more, you have to pay self-employment tax on your federal tax return. Oh, and don’t think the IRS doesn’t know about your earnings. Even though the companies you work for aren’t required to send you paperwork, they are required to let the IRS know if your earnings meet a certain threshold.
Ask Questions About Tax Reform
The new tax law has new deductions for so-called pass-through businesses. Do you qualify? Those are questions many self-employed are asking themselves. What they should be doing is talking to the tax professionals who are paid to know the tax rules. The tax professionals can explain the types of business structures and the tax advantages of each. There’s no need to try to figure it out on your own, when you’ve got experts out there who can help.
The gig economy has opened up a world of opportunity for those of us looking for a little something extra or who want to work on their own terms. To make gig work even more rewarding, talk to your tax professional about your responsibilities. Don’t get stuck with a big tax bill because you didn’t know the rules.
Brian Ashcraft, Director of Tax Compliance for Liberty Tax Service
As Director of Tax Compliance, Brian Ashcraft is responsible for developing systems and processes to help franchisees and their tax preparers meet rigorous compliance standards. He works with company leaders at the corporate office in Virginia Beach and with independent owners at franchise locations across the United States and Canada, reviewing processes in place and setting benchmarks for compliance success.
