Roughly one-third of US workers are involved in the gig economy in some way. Maybe you are a full-time freelancer or you drive for a ride-sharing company on the side. Either way, you should be prepared to settle up with the IRS for any money you made as a gig worker this past year. Here are a few of the special tax considerations you should know about.
Understand What Taxes You’ll Have To Pay
It is important that you understand what taxes you are required to pay and when they need to be paid. Since gig workers are considered self-employed, you will be responsible for self-employment taxes. These cover Medicare and Social Security taxes that would otherwise be shared by employers and employees. You will also need to pay federal and state income taxes.
Learn About Deductions and Expenses
Taxes are only paid on the profits your work generates, so you’ll want to keep detailed records for any expenses incurred during the course of business. Beyond the tools and supplies necessary to perform your work, you may also be able to deduct home office space, vehicle mileage or expenses, and certain healthcare costs. Because there can be confusion about allowable expenses and deductions, you may want to consult with a United CPA Association professional about what you can and can’t deduct.
Know When to File and Pay
It’s not all about what you have to pay. Sometimes the when is just as important. For example, if you think you will owe more than $1,000 in self-employment taxes, you should make estimated payments throughout the year to avoid a penalty. Stay on top of deadlines for filing, reporting, and paying taxes to avoid unnecessary fines or fees. If you think you will miss a deadline, request an extension to avoid penalty.
Taking part in the gig economy offers you the opportunity to do work you enjoy when you want. It also brings special considerations to make sure you are adhering to IRS rules. Staying organized and having a plan in place to ensure you meet them on time can help you maximize the benefits of self-employment.…