Gig economy is the term called for individuals offering services through online intermediaries or those who make money freelancing. They are those who rent out their bedrooms, giving strangers a ride; pretty much everything that involves offering services to people who cannot do things on their own and make money out of the service or place provided. These freelancers have emerged significantly in numbers for the past years caused by the modern world and its technological advancements. However, it has also increased the numbers of individuals who will have to face their tax obligations for running their own business. If you’re one of these people, make sure to read these four important tips that freelancers like you has to keep in mind every tax season to avoid complications or mistakes when filing your income tax return. Be Transparent With Your Report As a freelancer, the income you generate from your gigs has to be reported in an honest and concise manner. You cannot lie or input a wrong figure because online intermediaries connecting freelancers with its customers are required by the IRS to report all the activities and transactions made. Thus, the IRS expects your report on your tax returns to coincide with the report made by the online intermediary. If the amounts do not correspond to each other, the IRS is more likely to investigate the matter and you surely don’t want any of that to happen. Keep Track Of Your Records A self-employed individual has to keep track of his record regularly including all work-related expenses since they are deductible as expenses made for your business. If you're an Uber or Lyf driver, you can deduct all of your car expenses as an actual expenses or a standard business mileage rate. On the other hand, if you’re an Airbnb operator, a portion of your home expenses being used as a rental space can be deducted as well. Most common expenses for a rental space is depreciation value, utility, and taxes. There are companies that will provide 1099-K forms used to record payments made to you but that’s only if you’re earning more than $20, 000 and had 200 transactions or more during the year. Not getting the 1099-K form doesn't mean taxes aren’t owed. These forms don’t necessarily all of the activities you participated as well which may lead you to miss on significant deductions. The most common error is not being able to record the distance logged to pick up customers and only record the summary of the miles you’ve driven a passenger. This is one of the reasons why you must keep all the documents proving your expenses and activities performed. Get To Know All Possible Deductions A wise taxpayer should not only think about how much he owes, but how much he will be able to save as well. Getting to know all possible deductions related to your entrepreneurial business will help reduce or offset your taxes owed. Thus, you save money. If you’re using your home as a home office, you can use the deduction of property taxes considering there are new limits on individual taxpayers who deduct property taxes. You can take advantage of the new 20 percent deduction on a qualified business income of pass-through entities as mandated by the new tax reform law. You might even enjoy the deduction in whole or in part; either way, it’s a great deal. For ridesharing drivers, things like fuel, repairs, maintenance, insurance, and other car-related expense can be deducted. Using the standard mileage is more beneficial to you. Estimated Tax Payments Has To Be Paid Quarterly Since we are assuming you’re not subject to the traditional withholding made from employee paychecks anymore, you’ll have to pay your estimated tax payments quarterly base on your income. Payments are generally done by the 15th of April, June, September, and January. A penalty for underpayment of taxes is given to those who fail to follow this rule. However, if you’re one of those who do work for an employer but has an extra job, your employer can increase its tax withholdings from your paycheck using the new W-4 form. Doing this will be enough to cover any taxes you owe on your gig which is great if you don’t want to go through the hassle of paying quarterly or worst be subject to penalty.
Peter J. Marchiano, Jr., CPA