Being a gig worker comes with tax consequences
A gig worker is someone who completes temporary or freelance work. They are usually independent contractors hired on an informal or on-demand basis by multiple clients.
For example, gig work can include any income earning activity from rideshare drivers for companies like Uber, food delivery drivers for apps like GrubHub, freelance work for publications, photography, childcare services, cleaning services, music and entertainment performances, and social media influencers.
With the rise of the gig economy, you can easily fall into a sticky situation with your taxes if you’re not careful. Morgan V. Giebel Cannon, manager at 415 Group, explains that for people looking to make gig work their part- or full-time job, it’s imperative that they reach out to a tax professional early on for tax planning.
Online platforms have really opened the doors for gig work for all people and industries. There is a huge influx of people participating in these money-making activities with little understanding of the related tax consequences. It’s important to know that gig work qualifies you as a “self-employed individual” with the IRS.
Whether you’re completing gig work part time or full time, expect an impact on taxes. If most of your income is derived from gig work, there is a much greater need for tax planning.
In the case of gig work, tax planning really just means paying estimated tax payments. The question arises of how much to pay and when. Estimating your quarterly payment amounts starts by estimating your income from both your full-time, wage paying, job and your additional gig income. If a taxpayer does not have experience in projecting their taxable income, a tax professional can assist.
Gig workers can avoid large tax bills at year-end by paying in taxes throughout the year. This will also help you avoid penalties and an accumulation of interest for underpayment of estimated taxes.
If only a small portion of income is from gig work, the taxpayer may be able to adjust their withholding from their W-2 income to cover the tax obligations, and no estimated tax payments would be required. This would not be the case for taxpayers where the majority or all of their income is derived from gig work.
Deductible business expenses can help to offset gig income. The IRS provides a very inclusive list of deductible businesses expenses; however, it can be difficult to determine what costs are and are not deductible. 415 Group or other tax professionals can assist in making these determinations accurately to keep the taxpayer compliant with the rules and regulations provided by the IRS.
The biggest hurdle is awareness. Many taxpayers are not aware that the money they make “on the side” is still taxable income and can have substantial tax consequences. The key is to start talking to a tax professional before or at the start of your gig-work.
What if you’re a business that hires gig workers?
Tax planning can also become more complex for those in this position. For example, self-employed individuals and small businesses who are hiring gig workers may be required to file a 1099 in some cases.
415 Group can assist self-employed individuals and businesses in determining if an IRS 1099 Form needs to be issued. Although the firm does not prepare or process 1099 forms, we can recommend certain software packages for getting the forms filed in the most efficient and cost-effective way.
No matter how you get involved with gig work, we recommend reaching out to your trusted advisor. This is especially true as your “gig” – or your business utilizing gig work – grows. There can be numerous opportunities for tax savings that may not have been applicable as a smaller endeavor.
Contact 415 Group today to find out how we can help.