COVID 19 has created an influx of gig economy workers due to an explosion in the use of services like Uber, Lyft, Instacart, and DoorDash. It has also forced many, who have been laid off due to the pandemic, to look for ways to employ themselves as their savings accounts begin to dwindle. This classification of workers can be somewhat confusing when it comes to determining how to complete their taxes.
Gig Economy & Taxes
The gig-economy struggles when it comes to definitions within the code of taxes. These workers often get confused as to what tax resolution they fall under and often end up not paying their fair share of local, state, and federal tax debt. However, with the COVID 19 pandemic, some tax relief initiatives may be headed the way of these self-employed workers. So, just how do taxes work in the gig economy?
Who is Consider Self-Employed?
Freelancers, independent contractors, and gig workers are considered self-employed. So, those who drive or work for services like meal delivery and set their own hours, fall into this category. Also, artists, performers, and photographers who offer services and sell goods on platforms such as Etsy would qualify. Finally, those who have their own small businesses and work for themselves are obviously self-employed and would file their taxes as such.
What Record Do I Keep?
Whether you have a formally established business or LLC or are more casual in your approach, you will use a 1040 form to report your annual income. You must include a schedule C form with your taxes, as this will detail income and expenditures for your business. This will determine whether you have tax debt or may be eligible for tax relief.
How Do I Keep Track of My Income For Annual Reporting?
It is very important to maintain good books detailing your transactions in the case of an audit. If a client pays you more than $600 for goods and services, they should issue you a 1099 form. Additionally, you may get a 1099K form detailing credit payments if they are over $20,000 or greater than 200 transactions. Again, these aren’t guaranteed to be provided, so you will be responsible to have accurate fiscal records.
It is important to know what you can deduct to lower your tax liability. You can typically deduct a home office deduction for space in your home used exclusively for doing business. Also, cellular and internet service are typical deductions. Knowing what you can take off your income can save you lots of green.
When to File
Depending on the type of self-employed business you are in, you may need to file estimated taxes quarterly or every 6 months. Our mission at Ideal Tax Solution is to help you navigate the often-confusing gig economy income taxes so the IRS is one less thing you have to worry about.
We provide professional guidance to people whose lives have been affected by tax problems. To evaluate your specific tax issue and determine if you qualify for tax relief, please contact us for a free consultation. We are COVID-19 prepared, we will work with you over the phone and via e-mail.
The content of this post does not replace the advice of a licensed tax professional. Consult a qualified tax professional for questions specific to your circumstances.