The gig economy has awakened the entrepreneur in all of us. That doesn't mean we are exempt from the tax man.
Why sit at home bored after your day job when there is money to be made?
It’s a trend that is changing the way the world literally works, and many labor institutions are evolving with the times.
Taxes tend to be something often overlooked by newcomers in the gig economy. Without properly planning for your new income, tax season can be a time of new headaches and punches to your wallet.
And that’s speaking from experience!
Taxes are easy to dismiss when you’re trying out new gigs for the first time. Most people are used to their employers doing most of the tax legwork for us.
Any payment you’ve received from a gig is not taxed, and it is up to you to pay Uncle Sam before he finds you.
Confusing? Scary? It certainly can be.
But let's demystify this whole tax thing for you.
Gig Economy: IRS Tax Center
The IRS recently launched a new web page precisely for digital contractors.
It’s called the Sharing Economy Tax Center, and it aims to save you a bunch of money.
The IRS encourages self-employment with tax breaks for expenses like equipment, mileage, and even property (property is a bit tricky, but we will get to that in a bit).
If you spend money for your side gig, that money can be deducted from your tax payments.
Needed new tools? Tax deduction!
Spent money on gas? Tax deduction!
Fancy new cell phone to use for work? Tax deduction!
It’s important to note that the IRS didn’t develop new laws or policies. The issue is so many people are finding new ways of earning income, and there is a general lack of understanding of self-employment taxes.
It has likely caused a lot of chaos in the IRS offices.
Quarterly Tax Statements
As a gig worker, the frequency you file with the IRS quadruples. When self-employed, you need to submit “estimated tax payments” to the IRS on April 15th, June 15th, September 15th, and then January 15th of the following year.
These statements essentially tell the IRS how much you plan to make during the quarter as well as a payment based off of those predictions. The IRS is even kind enough to let you pay them right away.
It can be really hard to guess how much you will make in three months considering the craziness of gig work. But, that is why you also file a tax return the same time as everyone else.
It balances everything out.
The IRS also has this nifty Withholding Calculator to help you estimate your tax payment.
If you’re serious about signing up for a gig site, then go hard for the first month. It could help you get an idea of what kind money you could make.
And the taxes you'd owe, of course.
Just hope that you paid too much on your quarterly payment because you could end up owing more to the IRS if you haven’t paid enough.
If you have a day job, you can dance around estimated tax payments by taking more taxes out of your paycheck (daycheck?).
All you’d have to do is talk to your boss and fill out a new W-4 form.
Write-offs for Service Gigs
What many people don’t consider when filing their gig taxes (another hard learned lesson by many of our readers), is that any work related expense can be written off on your taxes.
Did you buy some leashes for DogVacay? Get a new bike for Postmates? Then save your receipts!
When tax time comes, the money you spent can be deducted from your tax payment.
Recordkeeping is essential for any freelancer, and it’s especially important for ride-sharers and WeGoLook Lookers.
To claim something as a tax write off, you need documentation proving so.
Websites like Quickbooks Self-Employed are great resources for logging invoices, expenses, and payments.
Quickbooks can run reports and create tax estimates on your computer or even your smartphone. Now, anywhere can be your office!
These programs are especially helpful for those who drive for their gigs.
Every mile driven while working has a dollar value which the IRS figures tax deductible.
Currently, you can write off $0.54 for every mile driven on the clock.
App-based drivers have the potential to save a lot of money in tax write-offs and for good reason. After all, you are putting a lot of wear and tear on their cars!
Any time you exchange money while working, keep a record of it. Doing so can save you thousands of dollars at the end of the year.
If you’re renting out your home space for Airbnb or Flipkey, then your taxes are somewhat different compared to the other gig sites.
The IRS doesn’t consider your extra income as a self-employed contractor. Rather, they see your extra earnings as rental income.
In which case, expenses like utilities, maintenance, and even your mortgage interest could all play a factor in your tax write offs. But don’t file just yet!
If your space isn’t occupied by a tenant or traveler more than 15 days out of the month, then none of your expenses are tax deductible.
The best advice when it comes to using your home as an asset to earn income, is to speak with a Certified Accountant.
Final Thoughts: Gig Economy Taxes
Tax law accounts for every which way you get paid. That is why they stress that these laws are not new.
It might seem like the tax man is always there with their hands out. But in fact, where there are taxes, there are deductions.
The IRS Sharing Economy Tax Center is a place for all tax law relevant to entrepreneurs of the gig economy.
And we recommend checking it out.
It may be a bit dry, but it could save you thousands of dollars, which is pretty neat. For more on Looker Taxes 101, check out our Looker Support Forum.