IRS Launches New Resource for Gig Workers To Make Filing & Paying Taxes Easier.
indsight is often said to be 2020. But this year, there’s actually something to look forward to: the IRS just launched the Gig Economy Tax Center. This resource is geared toward a growing number of taxpayers who – by way of successful side hustles in eCommerce, ride sharing, freelancing, and even social media influencing – are increasingly becoming self-employed, independent contractors. Those who fall into these and similar categories have earned the distinction of being known as Gig Workers.
Companies like Lyft, Wag!, and Roadie have developed innovative services that lead to uniquely rewarding work opportunities. For people who are unemployed, underemployed, seeking a second source of income, or simply trying to save for vacation – these companies are a digital blessing. And while many of these firms offer free or low cost tools to help their gig work armies better prepare for tax time, inevitably, they all have one thing in common: these resources fall short.
If you’ve ever been self-employed, you can appreciate how the never-ending cycle of planning, filing, and paying taxes can often seem overwhelming. And it isn’t uncommon for newcomers to the self-employed labor force to feel completely lost when they receive a 1099-MISC, and not the familiar W-2 they’re been used to receiving from their employers. Year after year, some people will make the mistake of assuming they don’t have to report their side gig income, especially when they don’t receive a 1099-MISC or a W-2 at all.
Income Earned From Gig Work is Taxable. Period!
Listen up: if you’ve earned $400 or more from self-employment/gig work, you are required to file a tax return. More than likely, you’ll have to include Schedule C with your tax return (which is the form used to report self-employment earnings). You may also be required to pay estimated taxes throughout the year if your employer does not withhold payroll taxes from payments made to you. If you’re uncertain as to your worker classification status, this IRS page provides some insights to help you determine whether you’re a self-employed worker (i.e., independent contractor) or a traditional employee.
Keep in mind: it’s entirely possible to be both – an employee, and an independent contractor – if you worked for more than one employer at any time throughout the year. For example, you might have a full time 9-to-5 job that you work Monday to Friday, every week, and you might also deliver meals via DoorDash or Uber Eats on nights and weekends.
A qualified tax accountant can help you make sense of your worker classification status and help maximize tax savings and benefits available to you. (I’ll insert my shameless plugs a little later).
The IRS Provides Useful Tips for Staying Up To Date With Your Taxes
You might be surprised at how frequently people put off filing their taxes because they’re either too complicated, they got busy, or can’t find all the supporting documents and forms needed to file a complete tax return.
The IRS suggests that you:
- Keep detailed financial records of your business expenses and business income to make the process of filing your income tax return much easier.
- Pay estimated taxes each quarter. The IRS may assess a penalty for failing to pay enough self-employment and/or income taxes throughout the year. Worse yet, you could find yourself owing a massive tax debt if you don’t pay anything at all and wait until April 15 to find out how much you might owe. Luckily, you can make estimated tax payments directly on the IRS’s website.
- Get ready to file your taxes by gathering all your W-2s, 1099s, and any other income-related details you’ve tracked or received from businesses for whom you’ve worked. Even if you don’t receive tax forms from those businesses, it is your responsibility to report all of the income you earned during the year.
- File your tax return. This should be obvious, but I’ll repeat it anyway: FILE YOUR TAX RETURN! You want to ensure that you file timely tax returns every year. If you don’t, the IRS may tack on late filing penalties and interest charges to whatever amount you owed as of the date your tax return was due.
Tools You Can Use To Simplify Your Tax Planning and Preparation
Intuit offers a service called QuickBooks – Self-Employed. It is designed to seamlessly track income and expenses, invoice and accept payments from customers, snap pictures of receipts and easily link them to business expenses for self-employed individuals. This web-based application can also be used to track miles driven while performing gig work, help you estimate quarterly taxes due, and generate financial reports which will come in handy when you get ready to file your annual tax return. Best of all: there’s an app for that!
TurboTax – Self Employed which is also developed by Intuit, is a do-it-yourself tax preparation service offering. It guides users step-by-step through the process of completing their own tax returns, at a reasonable price! For the budget conscious, QuickBooks and TurboTax are great ways to save money as you begin your journey toward understanding and representing the fast-growing self-employed workforce. However, for those of you who are unable to consistently manage your business finances, or otherwise would rather have someone else do this work for them, these tools may not be the best solution for you.
Take Small Steps Now to Make Huge Gains In Protecting Your Peace of Mind
What happens if you put off filing your tax returns? The IRS may decide to file a return on your behalf, which will almost always result in a higher tax bill than the one you might have had, if you had filed your own return on time. This is because they would have no idea what expenses they should offset against amounts they’re aware were to paid to you. If you’re really behind the ball, the IRS could even take drastic measures such as garnishing your wages, levying your assets (i.e., wiping out your bank accounts), and otherwise create major headaches for you at work, at home, and in court. Yes, in extreme cases, they can drag you to court for tax evasion.
There’s a reason the IRS has launched the Gig Economy Work Center. The lightning speed at which tech firms launched gig services made the idea of “being your own boss” that much more alluring and accessible to an incredible number of taxpayers. However, it also led to changes in how people report income and pay taxes. With this recent step, the IRS aims to provide more streamlined information to help people in the gig economy meet their tax obligations. In English, that means: the IRS wants to make sure you pay your taxes, and are working hard to ensure that you do!
Shameless Plug Alert: Xerebro offers bookkeeping and tax services to the self-employed, entrepreneurs, startup companies, and small businesses. Our goal is to be the leading trusted business advisor for our clients and to deliver world-class, professional services that are economical, impactful, and smart. We ensure that your income and expenses are tracked and organized so that when it comes time to file your tax returns, you’ll save money (which you can use to continue growing your business), and you’ll save time (so that you can actually use it to run your business doing what you do best).