Tax Tip for Gig Businesses
It is a new Gig Economy. More and more, people are free lancing with Lyft, Uber, blogging, IG or TW influencer role, and self employed tech contractors. We know the USA has evolved into a Gig Economy because the IRS, who loves to follow the money, has now launched a new gig economy tax center on IRS.gov to help people in this expanding area meet their tax obligations.
What is it? The gig economy – or sharing or access economy – refers to on-demand work, services, or goods provided – often through an app or website. What’s more, gig economy income is taxable.
Gig economy is taxable even if the income is
- From side-work, part-time work or temporary work.
- Not reported on a return form like a 1099, W-2 or other income statement form.
- Paid in a different form from regular paycheck; such as cash, property, goods, or virtual currency.
Still trying to figure out what qualifies as Gig Work? If you, or your services are booked through an app, like driving a car for booked rides or deliveries, property or rooms rental, run errands, sell goods online, rent equipment, provide creative or professional services, or other on-demand or freelance work. This list doesn’t have every type of gig work – event photographer or DJ comes to mind – it is just to give you an idea of gig work.
So, if you are doing gig work, the best way to manage the taxes side of the business, is to track and report the income.
Keep income and expense Records. Keeping a log of your gigs name, amount, how you were paid, can help you be organized for tax season and will save hours of frustration. Just as important is tracking your gig income, is tracking the expenses for each gig. This should also help you see how your income develops and which gigs are more profitable to take on. Don’t just log the expenses, but save the receipts to document any expense you claim.
Pay the Estimated Tax. If you work as a contractor, you might need to pay quarterly estimated taxes to avoid penalties. If you work as an employee and do gig work on the side, you can avoid making estimate tax payments on your gig income by having more tax withheld on your employee paycheck. Quarterly payments are due on the 15th of April, June, September and January for the quarter preceding the due date and can be paid online or by mail.
Organize. Getting ready to file means organizing your income and expenses and documentation of both, such as receipts. For example, if you are selling online, you can use your sales receipts to report payments not reported on a 1099 or W-2 form.
File. Depending on how your gig business is legally organized – sole proprietor, limited liability partnership, corporation etc. – you will need to file the correct form of tax return. If you are not sure what form applies, visit BusinessTaxPrep.org to be connected to a tax professional who can answer your gig work questions.